State budget ready for lawmakers' consideration

Posted: Friday, March 02, 2007

JUNEAU - Gov. Sarah Palin's staff on Thursday rolled out changes to the proposed state budget that fell short of targeted spending cuts, but did not stray far from the basic goals outlined in a spending plan last December, two weeks into Palin's term.

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Office of Management and Budget Director Karen Rehfeld said the $3.9 billion operating and capital budgets for the fiscal year that begins July 1 is sure to undergo a lot of changes by the end of session, however.

"We know there's a lot left to do to get to a place where we can provide the kinds of services Alaskans expect and where we can sustain those services into the future," Rehfeld said.

The operating budget does not meet the governor's goal of cutting $150 million from the budget she inherited from her predecessor, a plan that was already $750 million more than the current year's budget.

Instead, the cuts amount to $124 million.

Rehfeld placed most of the blame on a change in federal reimbursement rates for Medicaid, which she said will result in an estimated $37 million dollars more the state will have to pay into the program next year.

Rehfeld proposed instead lifting that amount out of funds proposed for capital projects.

The budget also includes over $463 million for retirement cost increases for agencies, school districts and municipalities. Some of the proposed savings, $42 million from retirement costs, would come from money saved as a result of legislation that has not yet been introduced.

Rehfeld said the savings assumes the legislation will result in a 2.5 percent decrease in the public employee retirement system costs through various funding mechanisms.

Rehfeld attributed another $77 million in savings, including $20 million from the Department of Health and Social Services, from internal restructuring and efficiencies with agencies, including leaving some positions vacant.

She said $48 million is realized from changes in how services are delivered. For example, Rehfeld said the Department of Corrections has a plan for bringing home some of the state prisoners who are currently housed in private prisons in Arizona.

Another $5.8 million in savings would come from the Alaska Marine Highway System, partly by cutting winter ferry sailings across the Gulf of Alaska.

Meanwhile, some budget additions since release of the December plan include the higher Medicaid costs, $13 million added to the Power Cost Equalization program to help rural areas pay their high energy bills and another $2 million to pay for an ocean ranger program to monitor cruise ships' waste disposal, a program voters approved along with a cruise ship head tax.

The governor continued to put forth a bare-bones capital budget totaling $199 million in state funds and covering just enough to meet federal and other matching grants.

The governor had proposed using an additional $134 million dollars left over from last year for the fiscal year 2008 capital budget, but that figure was shaved to $28 million in order to make up the amount she failed to save in the operating budget.

Lawmakers have already said they don't expect to stick to Palin's capital budget, which pays for equipment and construction projects around the state.

The governor's budget amendments were delivered to lawmakers the same morning. Legislators said they were impressed with how much work has been done and how much remains.

"It's a good effort. I have some big questions," said House Minority Leader Beth Kerttula, D-Juneau.

Kerttula said she would look closely at the cuts to health and social services and the marine highway. And she said she would be interested in learning more about the plan for savings in the public employees retirement system.

"We need to see where the real cuts are and where we need to add money back," Kerttula said.

Senate Finance Committee co-Chairman Lyman Hoffman, D-Bethel, said the as yet unveiled legislation could be critical not only to the budget but to the long term fiscal stability of the state.

"The big one is the PERS savings which is the biggest egg to crack," said Hoffman.

Meanwhile Sen. Gary Wilken, R-Fairbanks, said the state still has a lot of pent-up needs for capital spending, and he expected that budget will undergo much change.

"I don't think the legislature will be receptive to a small capital budget this year, although I don't expect it will approach anything near what we had this year," Said Wilken referring to this year's record spending.

The budget subcommittees will finish its work in the next two weeks with public hearings expected to begin in the House Finance Committee around mid-March.

House Finance co-Chairman Mike Chenault, R-Nikiski, said the governor's amendments indicated that the committee has a lot of work ahead.

"I've got a 4 and 5/16th inch stack of green paper on my desk. I actually took a tape measure out and measured it just so I'd know," Chenault said.

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