Operating budget passes Alaska House

Posted: Sunday, March 15, 2009

JUNEAU - The Alaska House looked on track to quickly pass a $9.7 billion operating budget Friday until legislators butted heads over whether to tap a state savings account to balance the budget.

The budget bill passed 29-9 but members of the Democratic minority voted against pulling about $2.6 billion from the Constitutional Budget Reserve to cover deficits in the current and the next fiscal years.

The deficits are a result of low oil prices and declining oil production on the North Slope. Democrats argued that the savings account should be protected.

The draw from the account requires at least a three-quarter vote of the body. It failed 26-12, four votes shy of what was needed.

House Finance Committee Co-Chairman Mike Hawker, R-Anchorage, accused Democrats of trying to "upset the fruit basket" with partisan politics.

"It's really disappointing when this was frankly structured in the best interests of the state," Hawker said later. "I think politics have reared their ugly head and gotten in the way of doing the right thing."

Under the proposal, about $1.5 billion in savings would go to balance the current budget year's shortfall and $60 million would pay for community revenue sharing in the fiscal year that begins July 1. Another $1.1 billion would go into the public education fund for the year after next. The fund, which lawmakers replenish every year, sets aside money for K-12 schools one year in advance.

House Minority Leader Beth Kerttula, D-Juneau, argued is support of preserving the savings account, which recently suffered deep market losses. In the past two years, lawmakers added $5 billion in surplus revenues from high oil prices to the reserve, including a sub-account that was aggressively invested in stocks. The sub-account lost about $1 billion in the recent market downturn.

The reserve account now totals about $6 billion. Half is in cash and half is in the market.

Pulling out cash assets could leave the fund vulnerable, Kerttula said, and may force the state to liquidate stocks at a loss in the next budget cycle.

"If we have to liquidate, we could be losing another billion bucks," Kerttula said.

The account has not been needed since 2004 because high oil prices resulted in budget surpluses. Its use has always been contentious because of the three-quarter vote requirement.

Majority Republicans complained that the vote gave a few minority party lawmakers too much control and drove up spending.

Democrats said the voting requirement was one of the few real checks on the majority party.

They withheld their vote this year, suggesting instead that the state delay replenishing the public education fund until the year it is needed, and then using money from the state treasury. Kerttula also suggested other savings accounts could be tapped as well.

Kerttula said Hawker was using public education and revenue sharing as bait to lure Democrats into voting for the savings withdrawal.

Hawker said his purpose in structuring the payout was to present the state in the best financial light to analysts on Wall Street. Hawker said it's important the state retain its excellent credit rating, especially when it may need access to capital to advance its natural gas pipeline agenda.

"There's nothing that the financial analysts like better than a balanced budget and consistency among political decision makers," Hawker said.

The budget otherwise drew little dissension. Of the $9.7 billion, it included $1.8 billion in federal funds, $2.8 billion in general funds and $5.1 billion in other state funds, which includes nearly $2 billion for Alaska Permanent Fund dividends and inflation-proofing the fund.

The measure fully funds Power Cost Equalization, which subsidizes rural residential electric rates and the power bills of community buildings. The budget covers spending recommendations of last year's education task force for K-12 schools. Hawker said additional investments were made in public safety, students attending medical school, and a pre-kindergarden pilot program.

The budget also funded about $18 million in requests from Gov. Sarah Palin for support of natural gas pipeline development.

"This is a responsible budget but not a sustainable budget," Hawker said, referring to oil production's steady decline. "It meets the needs of Alaska but also needs to be the beginning of a new discussion about what we expect from government and how we are going to pay for it."

Rep. Harry Crawford, D-Anchorage, characterized the document as a "hold the line, status quo budget."

"There are some new initiatives, and we've cut back some, but basically we're at the same place we were at the beginning of the year," Crawford said.

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