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Palin slashes spending by $445 million

Governor says state budget cuts needed to cope with reduced revenues from oil

Posted: Thursday, February 19, 2009

Gov. Sarah Palin on Wednesday announced spending cuts of $445 million in next year's proposed budget to cope with reduced revenues from continued low oil prices.

The budget changes for the fiscal year beginning July 1 were accompanied by a revised revenue forecast. The Department of Revenue is now projecting the average price of a barrel of oil at $57.78, down from last fall's forecast of $74.41.

The difference put estimated state revenues at $3.1 billion, down more than $2 billion from the forecast last fall.

"Given current market conditions and oil prices, we have made reductions in the proposed spending plan for next year," Palin said in a prepared statement. "We are continuing our efforts to provide important public services, while cutting back on areas that can certainly wait until we see improvement in our revenue stream."

Palin's budget recommendation, including federal spending, is now $10.6 billion. The state general fund spending recommendation with the suggested reductions would be $4.4 billion.

The bulk of the general fund reductions - $382 million - are from the operating budget, including $166 million that would have gone to speed paying down the unfunded liability in the public employee and teacher's retirement systems. Palin said $284 million remained in the budget to fully fund retirement systems and employer rates would remain unchanged.

The reductions also include $100 million in unrealized tax credits for companies investing in oil and gas development in the state. The administration earlier this month reduced the amount authorized to be spent on the tax credits in the current year by $200 million.

Palin last year requested a total $400 million to cover the tax refunds in this fiscal year and $300 million next year - a program first approved by lawmakers in 2006 and intended to spur oil and gas development.

Department of Revenue acting chief economist Cheryl Neinhuis said then that the credits are taking longer than expected to process.

Neinhuis said that does not mean companies are cutting back on investments.

Proposed increases include $8.4 million for Alaska State Troopers and village public safety officers, $2.3 million for negotiated increases with the Inlandboatmen's Union, and $6 million for the Department of Law for oil and gas and Endangered Species Act issues.

Capital spending from the state treasury for construction projects around the state was reduced by $63 million.

Under the governor's proposal, the state would have to draw approximately $1.2 billion from savings accounts to balance the budget. The state has approximately $8 billion in reserves.

The governor's budget office released the budget proposal changes late Wednesday afternoon and most lawmakers had not reviewed them.

Sen. Kim Elton, D-Juneau, said it's still unclear how the federal economic stimulus bill, expected to bring Alaska about $1 billion in federal spending and tax cuts, will affect the budget. The $787 billion package is expected to pay for infrastructure projects and provide money for schools, energy projects and social services.

"Right now there are far more questions than answers and the challenge will be keeping the politics out of it," Elton said.



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