JUNEAU — State spending, education funding and plans for advancing a major gas line project are among the big issues facing lawmakers when they return to Juneau for the new session.
When the Legislature reconvenes Tuesday, it will be the first time in several years that oil taxes aren’t on the docket. The issue, however, figures to loom large in discussions about state spending and the gas line project.
Voters in August will be asked to decide whether to repeal the oil tax cut passed last year. Critics fear the crash in unrestricted general fund revenue forecast for this year and next is the tip of the iceberg if the new tax stands. Supporters argue the state is better protected at current prices under the tax change, which they also say is helping to spur investment.
The Department of Revenue has cited several factors for the revenue decline, including lower-than-expected oil prices, declining production, residual effects of the outgoing tax system, such as a closeout of credits, and higher-than-expected deductible lease expenditures. Provisions of the new tax kicked in Jan. 1.
House Majority Leader Lance Pruitt, R-Anchorage, said he doesn’t believe the state will get a gas line if it reverts to the old tax system, which would happen if the referendum were successful. Oil and gas companies pursuing the liquefied natural gas pipeline project — BP, ConocoPhillips and ExxonMobil Corp. — all lobbied for the tax change. Pruitt said he wants people to recognize “we don’t get gas unless we have oil.”
For the companies, the money is in oil, and without a “positive” oil tax structure, the likelihood for them making significant investments in gas is limited, he said. Pruitt said he considers the Legislature taking up tax and royalty terms related to the gas line project something they must do this session.
An agreement between the state, companies, TransCanada Corp., and the Alaska Gasline Development Corp., setting out a roadmap for moving ahead on the project, is contingent upon enabling legislation passing. Republican Gov. Sean Parnell plans to propose such legislation.
House Speaker Mike Chenault, R-Nikiski, said he believes the project is heading in the right direction. But he said he wants to see Parnell’s specific proposal and how that might fit with ideas some legislators have been working on. He didn’t elaborate on those.
Senate Minority Leader Hollis French, D-Anchorage, said the time to negotiate with the industry on a gas line project was when oil taxes were still on the table. French opposed the tax cut.
“I think industry senses they won on oil taxes and now they can win again with a very oil industry-friendly administration,” he said. The Legislature needs to understand exactly what is in the agreement, he said.
Rep. Chris Tuck, D-Anchorage, worries the issue might get rushed so people can say they voted for a gas pipeline. Many legislators are up for re-election this year.
Besides gas line-related issues, French expects considerable time to be spent on education funding. “We’re coming up short, and I think people are eager to engage in, What’s the right level of education funding?” he said.
The House Task Force on Sustainable Education, in drafting a presentation last month, agreed with language stating that to provide for a sustainable future, state spending levels must to be reduced and a portion of revenue set aside for future generations. Members clashed, however, over proposed language that in the current budget environment, education funding needs to be reduced, too. The language ultimately included stated that the public should be made aware that current education spending is not sustainable. The debate stoked fears of education spending cuts.
Pruitt said that’s not something his caucus has laid out.
“I think education is in the same boat that every single one of our departments are in, and that’s that we have to look at them all equally,” he said. “Does that mean they may stay flat? Will there be cuts in certain departments? Yeah, but I don’t think education has been pulled out specifically as something to be targeted at all.”
The overall goal is to get a better handle on costs for operating state government, he said.
Parnell has said the state remains on strong financial footing, with billions in reserves, but will need to “tighten our belt” on spending and use savings to get by with oil prices lower than in recent years.
Parnell’s budget office expects a need to move $1.9 billion from savings to balance this year’s budget because of lower-than-expected revenue. Parnell’s spending plan for next year would require a $1.1 billion draw from savings to balance.
Chenault said part of the spending discussion will be Parnell’s proposal to move $3 billion from savings to help pay down the state’s pension obligation. The state currently is on a payment schedule that’s expected to top $1 billion before dropping. Parnell argues that staying on that track will put too much pressure on the state budget.
French said he expects the focus of that debate to be on what such a draw would do to the state savings accounts “and how much closer that moves to the present day the fiscal cliff that’s coming.” But he thinks the idea — similar to what Democrats supported previously — is a good one, likening it to paying down one’s mortgage.
“I don’t think that we’re so political that we will oppose the same idea we liked coming from one of our colleagues coming from somebody else,” he said.