Budget reserve battle lines drawn

Posted: Friday, January 18, 2008

The state of Alaska owes more than $5.2 billion to its Constitutional Budget Reserve, but there appears to be little sentiment in the Legislature to fully repay the money borrowed from the fund.

Some legislators, in fact, say they'd like to see the reserve done away with entirely.

While the voters had good intentions when they tried to save money in the reserve, it has actually had the opposite effect and resulted in unnecessary pork-barrel spending, critics such as House Speaker John Harris, R-Valdez, say.

The problem with the reserve, he said, is that it takes a three-quarters majority to take money out of the reserve, meaning that almost any legislator can parlay a single vote into pork for his or her district.

"It's legalized bribery, but it's still bribery," he said.

The voters approved the creation of the budget reserve in 1990 as a way to save money for lean years. It proved crucial in the 1990s when oil prices fell and billions of dollars from the reserve were used to balance the state budget.

The reserve was originally funded with money from tax settlements, which are required by law to be deposited in it.

Sen. Gary Wilken, R-Fairbanks, said the reserve isn't working as hoped.

"The CBR is well intended, but what it does is bastardize the budget process," he said.

The three-quarters vote required for dipping into the reserve means it takes 15 of 20 senators to access the money.

"The cost of getting the 15th vote really dirties up the budget process," Wilken said. "It drives up spending rather than reducing spending."

Oil prices are now at all-time highs, a new oil tax is bringing in new money, and oil production may never be as high as it is today.

Gov. Sarah Palin has proposed a budget putting $379 million repayment over the next two years, a repayment rate Sen. Kim Elton, D-Juneau, said is unlikely to replenish the reserve before declining state finances have the state tapping it again.

Sen. Bert Stedman, R-Sitka, co-chairman of the Senate Finance Committee, said now is the time to boost the reserve, while the state is flush with money.

"This is a golden opportunity to make a substantial contribution in the CBR," he said.

The state will need the budget reserve to bridge the gap between declining oil revenues and the beginning of natural gas flowing to market.

"If we were to put $2 billion to $3 billion in the CBR, the state would be in a very strong financial position heading to first gas," he said.

Without it, he said, there will likely be calls for new taxes or tapping the Alaska Permanent Fund to run the state, Stedman said.

Rep. Beth Kerttula, D-Juneau, said she thought there would be support for Palin's plan, and maybe more than the governor proposed.

"There seems a pretty good consensus through the Legislature that there ought to be savings," she said. "I personally think you've got to put it in a place where it is hard to get to so it will be around for a while, and I think the CBR is the place to do it."

Last year Palin proposed putting $1 billion in the CBR, but despite a big surplus, the Legislature put only $50 million in the reserve, instead saving the remainder so it would be readily available this year.

Harris said that despite his personal opposition, at least some of this year's surplus will go the reserve.

"I have a feeling that we'll put some in the CBR," he said.

Kerttula said there may be disagreement over the merits of the CBR, but the Alaska Constitution requires repayment of borrowed money, and unless it is amended it will continue to do so.

"At the moment we have an obligation to refund the CBR," she said.

Wilken said he'd be open to changing the constitution.

"Tell me where I sign up," he said.

• Contact Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.

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