Senate unveils bare bones capital budget

Proposal cuts more than half a billion from budget

Posted: Friday, April 10, 2009

JUNEAU - With the end of session looming, the Senate Finance Committee unveiled a pared down capital budget Wednesday night that lops more than a half billion dollars off Gov. Sarah Palin's proposal.

Matthew Daly / The Associated Press
Matthew Daly / The Associated Press

House and Senate finance leaders met with Palin on Wednesday and Thursday over the $1.7 billion spending measure for construction projects and equipment. They plan more meetings to resolve differences before the April 19 deadline for the legislative session.

The cuts to Palin's priorities give lawmakers some leverage in endgame budget negotiations, but all sides have said they want to hold the line on spending this year.

Committee Co-chairman Bert Stedman, R-Sitka, said most lawmakers prepared their districts for fewer capital projects this year.

"Everyone is aware of the economic conditions nationally and the impact on revenues with the decline in oil," Stedman said. "Most communities around the state are prepared for a cautious capital budget. This is a deficit reduction bill."

Still, lawmakers want a greater say in shaping the budget. Palin has not been shy about using her line item veto powers, surprising and infuriating lawmakers during her first two years in office by slashing scores of projects for their districts.

In contrast, the first draft of the budget covering the fiscal year beginning July 1 contains only a portion of the governor's recommendations and a $45 million boost in spending of cruise ship head tax revenues. The head tax spending was added on the advice of the Department of Law, according to Stedman, who said lawmakers added no spending requests of their own.

House Finance Committee Co-chairman Bill Stoltze, R-Chugiak, said the state constitution sets in place a strong head of state and he supports the governor's veto rights.

"But the Legislature is a little pesky about having a little bit of a voice in the appropriation process, because that is the primary responsibility our constitution gives the Legislature," Stoltze said.

"You can't veto money into a budget," he added.

The governor would have to negotiate to get her priorities back in, which could even include projects for her home district. The Matanuska-Susitna Borough sent out a press release Thursday complaining that the committee's first draft sidesteps the fastest growing region in Alaska.

"We're very disappointed," borough manager John Duffy said.

Among the items left out was about $100 million in software improvements in the departments of Administration and Revenue. Palin's budget director, Karen Rehfeld, said those may have to wait, but more immediate needs that were axed include $8 million in planning for an in-state natural gas pipeline, $4 million for studies of the state's oil and gas reserves and $26 million for the Dalton Highway. Also among the cuts are $9.5 million requested to refurbish Juneau's Johnson Youth Center to meet safety and security needs. That project would have been funded out of the general fund.

"But again the governor's very mindful of the revenue situation and wants to work with the legislature on that overall dollar amount," Rehfeld said. "So I think it's going about as well as it can at the moment."

The capital budget also contains more than $292 million in transportation projects to be paid for with federal economic stimulus dollars.

Lawmakers reworked the Department of Transportation's spending list for the money. The governor's plan would have spent more than $100 million on highway improvements to benefit the proposed natural gas pipeline project that would carry North Slope gas to markets in the Midwest. Stedman said lawmakers instead spread the dollars across more areas of the state "to get as much stimulus to as many Alaskans as we could."

"There's a time for large capital budgets but that's a time of excess revenue," he said.

With oil prices pushing past $140 a barrel last year, lawmakers socked away about $5 billion in savings. With prices now hovering below $50 a barrel, they estimate they will have to draw about $1.5 billion from savings in both this fiscal year and the next.

They traditionally fill spending gaps with money drawn from the Constitutional Budget Reserve, a savings account that holds about $6.5 billion. About half of that amount is in a sub-account that was aggressively invested in the stock market. The account lost more than $1 billion in the recent market downturn and lawmakers want to avoid tapping the account and realizing those losses.

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