JUNEAU — Alaska Gov. Sean Parnell on Thursday proposed a $12.4 billion state budget for next year that would require using $1.1 billion in savings to balance before legislators get to work on it.
Parnell told the Anchorage Chamber of Commerce gathering where he unveiled his plan that he was leaving room for legislators to add and would work with them on an overall spending target. He said the state must “tighten our belt” on spending and use savings to get by with oil prices lower.
His budget office also expects a need to move $1.9 billion from savings to balance this year’s budget because of lower-than-expected revenue.
Still, he sounded an optimistic tone, saying Alaska is on solid financial footing.
“We are not in dire straits,” the Republican, who faces re-election next year, told reporters later. He said the state has weathered drops in oil prices in the past with reserves that were replenished when prices rebounded. The state started the fiscal year with more than $16 billion between two reserve funds.
Two elements of Parnell’s 2015 budget proposal expected to generate debate during the upcoming legislative session are education and his plan for addressing the state’s $12 billion pension shortfall.
Parnell proposes transferring $3 billion from a reserve fund to help pay down the pension obligation. His budget office said that approach could save the state more than $2 billion over the long run. While some Democrats have expressed support, House Speaker Mike Chenault, R-Nikiski, said he didn’t know if the Legislature would support it.
Parnell’s budget increases total funding for education by 0.6 percent, which House Democrats deemed inadequate.
The governor said he is willing to discuss education funding and innovation during the upcoming session. He has proposed a digital learning initiative to help provide kids, particularly in smaller, rural schools, with more diverse, higher-quality classes.
House Democratic Leader Beth Kerttula said she expects a fight over school vouchers, given some of the discussions lawmakers had last session, and anticipates having to “fend off an attack on public education.” While she’s glad Parnell is willing to talk with Democrats about their ideas on education, she said the state is not making the kinds of investments it should in areas like education or properly managing its resource wealth.
Alaska heavily relies on oil revenue to fund the operations of state government, but production has been on a downward trend for years. Higher prices in recent years helped to mask the financial impact. But the state now faces a $2 billion drop in unrestricted revenue, from $6.9 billion last year to $4.9 billion this year, a Revenue Department forecast said. It is expected to drop to $4.5 billion next year.
Department officials have attributed the decline to factors including lower-than-expected oil prices and decreased production.
Parnell said opponents of the oil tax cut he ushered through earlier this year will try to blame it for the revenue decline. But he said the new tax system will better protect Alaskans at lower prices and will lead to more production. Voters will decide whether to keep the tax cut during a referendum next year.
Sen. Hollis French, D-Anchorage, said the tax cut is a large part of the state’s current situation.
Parnell’s budget also continues initiatives he’s pushed since taking office, including additional funding for village public safety officers, a campaign against domestic violence, state-supported merit scholarships for high school graduates and addressing deferred maintenance of public infrastructure.
Bigger-ticket items include $10 million for the proposed Susitna-Watana dam, $20 million toward completing two university engineering buildings and $31.5 million for school construction.
He’s proposing cutting 150 state government positions, which his budget director told reporters were generally long-term, vacant positions.
The total budget for the current fiscal year is $13.4 billion, Parnell’s budget office says.
Online: To read the budget proposal: https://omb.alaska.gov/