Despite legislators’ inability to adopt fiscal reforms, the good news is that Gov. Bill Walker isn’t backing off. He is keeping the issue on the table, and showing plenty of guts. His June 29 veto of half the funding for the Permanent Fund Dividend is a strong and powerful wake-up call to the public and the Legislature–a message delivered with a sledgehammer. Let’s put it this way: He has chosen to be less the politician and more a governor. The message in the $1.5 billion vetoes and other spending reductions imposed by the governor is simple: Either cut spending or enact revenues to support spending. The bottom line is to stem the outflow from state cash reserves, and do it now.

Some legislators are quietly saying Walker didn’t go far enough, and in doing so missed some opportunities. We discuss that later in this report.

In the regular session and even the special session, when it came to dealing with the Permanent Fund and other tax and revenue issues, the Legislature essentially said: ”Later.” This required budget-balancing funds to come from the Constitutional Budget Reserve (CBR), reducing state cash reserves.

Cost shift to local municipalities – school debt service veto. One new wrinkle in this is the veto of state funds for local school debt support. This falls under the heading of “cost shifting” to local taxpayers. Walker vetoed roughly 25 percent of the state’s statutory share of local school debt service, or $30 million. This now becomes a local obligation, the state’s share being only a moral pledge. This is a wake-up call for municipalities, challenging them to engage in the fiscal debate or expect that state to shift more funding responsibilities to the local level.

In education, the governor also vetoed $6.5 million from the FY 2017 increase in the $50 Basic Student Allocation (BSA), another $15 million in one-time funds, and $6.35 million in pupil transportation money. Short falls in pupil transportation generally mean that classroom funding must be shifted to support this service.

The governor’s veto of $655 million for Permanent Fund dividends would cap the dividend at $1,000 this year. Additional cuts of oil and gas tax credit funding would save another $430 million. The PFD and tax credit cuts would stem an outflow of state cash by roughly $1.1 billion, reducing the draw from the Constitutional Budget Reserve by the same amount. Other vetoes would capture roughly another $500 million, for a total savings of about $1.6 billion.

The oil tax credit cuts affect spending only this year, of course. The moral

obligation to pay is still there, although the tab for money owed is getting steep. Walker also signed HB 247 June 29, the controversial bill changing the tax credit program. The bill winds down tax credit obligations in Cook Inlet rapidly but leaves some North Slope credits in place.