Lawmakers go to work on state budget

Posted: Monday, February 25, 2008

State lawmakers on the House Finance Committee are poised to tackle a state operating budget that's about three weeks early this year, but leaves open some of the Legislature's toughest questions and myriad loose ends.

With the 90-day legislative session fast approaching the halfway mark, lawmakers have yet to lay out their plans for the state's massive budget surplus, which could reach $5 billion or more over the next two years from continuing high oil prices and a recent boost in oil production taxes.

One thing is clear: They are not embracing key elements of Gov. Sarah Palin's proposed savings initiative, which majority members have largely dismissed as being less about savings than deferred spending.

Two pieces of Palin's initiative, a proposed $1.5 billion deposit to fund education in future years and a $450 million deposit to pay down the unfunded liability in the Teacher Retirement System, were not included in the spending plan for state agencies and K-12 education that first appeared in committee last week.

The $10 billion plan spends $4.2 billion from the state treasury, the rest is federal and other state funds.

Finance Committee Co-Chairman Mike Chenault, R-Nikiski, said many lawmakers objected to putting money into the Public Education Fund for three years out. The Legislature's goal has been to prefund education one year ahead, a goal that is met with a $1 billion appropriation to fund schools next year, he said.

"If you put in (a total of) $2.5 billion, you'll just have the education community back down here next year trying to convince us that they need considerably more and, since we have it in the fund, we should give it to them," said Chenault.

Chenault said he's still weighing the merits of putting $450 million into the teacher retirement account - thus reducing annual payments by about $46 million - or putting it into savings to draw interest instead.

Many lawmakers agree the best place for the bulk of savings from the surplus may be the $2.7 billion Constitutional Budget Reserve, one of the state's main savings accounts and the depository for revenues left over at the end of the year. Lawmakers borrowed more than $5 billion from the fund to balance the budget in lean years, money that was never repaid.

Chenault suggests as much as $2 billion could go into the fund. House Minority Leader Beth Kerttula, D-Juneau, agreed that was a good idea.

"We've talked about that in our caucus - $2 billion to $2.5 billion - as a starting place since the beginning of session. Many of us have said some of this money has got to be saved," Kerttula said.

Most lawmakers anticipate leaner years ahead and say savings would help tide the state over. Budget surpluses are not expected to continue past fiscal year 2010. Even if oil prices continue to be high, they are expected to be offset by declining oil production.

How much is left over for savings will depend on the final operating and capital budgets. House finance leaders say their operating plan spends $100 million less from the state's general fund than Palin's plan, though the budget will likely grow some over the next few days.

The Senate has not begun hearings yet on the capital budget, which pays for new roads, schools and other infrastructure around the state.

A few of the cuts to the governor's operating budget made by the House finance subcommittees include:

• A $1.4 million increase that would have fully funded Power Cost Equalization, which helps subsidize high utility bills in rural areas.

• A $523,000 increase to the recently formed Pipeline Integrity Office.

• A $2.5 million expansion of a grant program for low-income students at the University of Alaska.

The budget also funds municipal revenue assistance at $50 million instead of the $75 million proposed by Palin. A plan for sharing state revenues with communities will be finalized in separate legislation.

The subcommittees also removed $7.2 million for research projects by the Department of Fish and Game that would have made up for lost federal grants and $4.7 million for litigation against oil company BP PLC over pipeline corrosion on the North Slope. Chenault said those items were set aside for consideration by the full finance committee.

Meanwhile, some proponents of state programs that are getting the squeeze made their concerns known in public testimony Friday and Saturday.

They included Rosalie Nadeau, executive director of Akeela House in Anchorage, who told lawmakers that cutting increases for substance abuse programs will hurt programs like hers that serve indigent people who aren't eligible for Medicaid.

Akeela House has seen a 62 percent reduction in real dollars over the last five years, said Nadeau.

"We, like many providers, are on the edge of collapse and that's endemic across the state," she said.

Patty Wisel, mother of a child in Headstart, protested the committee's elimination of an extra $600,000 for the preschool program after years of flat or reduced funding.

Wisel said the program gives kids "all the basics to be successful in their school life and after."

David Kasser with the Anchorage Convention and Visitors Bureau urged lawmakers to return Palin's proposed $8 million boost to marketing Alaska's many attractions. He said Alaska falls well behind other tourism-friendly states like Hawaii, which sinks $100 million into touting its scenic beauty.

Public testimony continues today. The committee will consider amendments through Thursday. Chenault said he expects the budget will be ready for debate on the House Floor by next Monday and on its way to the Senate that Thursday.

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