State's spending slowly on the rise

Posted: Tuesday, May 15, 2001

The Republican-led Legislature changed course on state fiscal policy this year, although Democrats said it was at a snail's pace.

And questions remain about long-term budget-balancing.

In 2000, the Republican majorities in the House and Senate completed a five-year mission to cut $250 million from the state's general fund, which they say deferred new state taxes or use of the earning reserves of the Alaska Permanent Fund.

This year, the mantra was "a status quo budget" that would preserve existing services and increase spending for a few top priorities but not open the floodgates for big government.

"Our efforts over the last five years to find cost savings and budget reductions has paid off, allowing us the flexibility to provide additional funding for education, public safety and public health," said Rep. Eldon Mulder, an

Anchorage Republican who is co-chairman of the House Finance Committee.

The $2.4 billion general fund budget for the fiscal year beginning July 1 is an increase of $118.6 million in state money, said Annalee McConnell, budget director for Democratic Gov. Tony Knowles. She acknowledged that the administrative and legislative spreadsheets don't always match. "The Legislature may slice it and dice it a little differently."

Republicans said they spent $60 million less than Knowles asked for and about $5 million less than if they simply adjusted for inflation and population increases.

Including federal funds and state dividend programs, but excluding the permanent fund, the total state budget will increase from $5.1 billion to $5.5 billion, McConnell said.

Although Republicans had set spending targets above current year levels, last-minute negotiations with Democrats over tapping the Constitutional Budget Reserve, a state savings account, led to additional increases of about $30 million to $40 million.

A three-quarters vote is needed to draw down the reserve fund to make up the difference between state revenue and state spending. In the end, only Sen. Randy Phillips, an Eagle River Republican, voted against using the back-up account. A draw of about $631 million is expected, with the $3 billion fund now headed for depletion within five years.

"We've added and added beyond the comfort level of many of us," said Senate Majority Leader Loren Leman, an Anchorage Republican. Three Republican senators voted against the operating budget.

The biggest battles were over education spending.

A task force convened by the governor called for at least $45 million in increased spending next year to make up for years of erosion caused by flat-funding and inflation.

The Legislature put $14 million into the basic per-pupil formula, raising it by $70 to $4,010, and added about $3.8 million in tax relief for school funding, along with special bumps in state aid for Wrangell and Petersburg.

"I find it disturbing that we've inflation-proofed the permanent fund, but we haven't inflation-proofed our students," said Sen. Kim Elton, a Juneau Democrat.

School construction projects financed by tobacco settlement money sometimes prompted even more heated debate.

Initially, Senate Republicans agreed to only two school construction projects and nine maintenance projects, but the Democrats used their leverage in the final hours to boost that to four and 30, respectively. Included was $9 million for maintenance at Juneau-Douglas High School.

There was again much talk about, but little action on, a long-range fiscal plan.

A bill to divert more oil revenue into the general fund, instead of the permanent fund, was passed by the House but languished in the Senate. Only the Senate passed a proposed constitutional amendment to set a cap on state spending.

A bipartisan Fiscal Policy Caucus formed, consisting mostly of House members. The group began researching elements of a long-range plan and plans public hearings in the interim.

Legislators are reluctant to spend even federal money.

Knowles proposed to jump-start $425 million in transportation projects by financing them through future federal highway funds. Among the projects were two fast ferries for deployment in Southeast.

But the idea met resistance, partly because Senate Republicans were skeptical about the fast ferry technology. Senators also eliminated a fast ferry for Prince William Sound that would have been financed out of an existing pot of federal money.

Bill McAllister can be reached at

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