Palin's budget takes the advisable path

Posted: Sunday, February 01, 2009

Gov. Sarah Palin has taken the responsible approach to the state's budget for the fiscal year beginning in July. She has proposed neither massive cuts nor the continuation of unsustainable budgetary growth.

That's not to say the governor's plan, if implemented, will be all roses. As the state saw in the mid-1980s, the crest of a massive increase in public spending can induce a recession.

When the huge state capital budgets of the early 1980s stopped growing annually, the state's economy tanked as spending failed to keep up with speculation. Oil prices fell in 1985 and forced further cuts in state spending - remember Gov. Steve Cowper's "all bets are off" announcement shortly after his election in 1986? Budget cuts were all that was needed to slow the state economy for several years.

We're looking at a similar setup today, although not so dire in terms of the state's fiscal position. State and federal spending have crested after a build-up of several years. Lower oil prices are reinforcing the need for the state government to be conservative in its spending.

In the face of such challenges, it's best for Gov. Palin and the Legislature not to make any sudden moves. The state has substantial reserves that it could and should draw upon.

Palin has proposed cutting overall state spending by 7 percent. That's enough to hurt. It isn't so drastic as to knock the knees out from under the state's economy.

Even still, such a conservative budget likely will require spending a chunk of the state's savings accounts. How much is very difficult to say.

Back in December, when the governor released her budget, planners were assuming the state would actually earn $388 million more than it would spend in general funds during fiscal 2010. That still could happen, but seems less and less likely as oil prices continue to hang around the high $30 and low $40 per barrel range.

Alaska will have enough challenges bleeding over from the national and global economic freeze-up. The state government should do what is prudent and avoid contributing to the panic. That means using some savings if necessary while keeping an eye on sustaining what we create today.

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