Budget spends half of oil windfall

Some lawmakers skeptical about oil price projections

Posted: Thursday, December 16, 2004

Gov. Frank Murkowski released his budget proposal for fiscal year 2006 Wednesday, with plans to spend over the next three years more than half of a projected $653 million windfall from high oil prices.

Murkowski plans to spend $352 million between fiscal years 2005 through 2007 and hold the remaining $301 million for future deficits. But some lawmakers questioned whether oil would stay high enough to fund the proposals.

The 2006 budget would send $127 million in additional funding to K-12 education over the next two years and makes permanent the Legislature's $82 million increase in education for fiscal year 2005, which ends in June.

"I think this is responsible and this will provide fiscal stability, which will enable school districts to plan how to best meet their needs and the learning needs of students and provide the assurance that teachers are not going to be distracted like we've seen in the past where they're threatened with layoffs," Murkowski said.

The proposal also includes $145 million for road construction and improvement projects in Anchorage, Kenai, Matanuska-Susitna, Fairbanks and other areas of the state. The projects will be funded through a $343 million bond package to be issued by the Alaska Housing Finance Corporation. The state will pay for the bonds through $30 million in annual interest earnings from the $424 million the state received from an 18-year lawsuit over oil royalties in the 1990s.

The budget sends $81 million over the next two years to aid cities in paying retirement costs through the Public Employee Retirement System and Teacher Retirement System. The University of Alaska would receive $7 million to help pay its retirement costs.

About $28.6 million will go toward promoting the construction of a gas pipeline and $6.5 million will pay for the small city energy assistance program.

The budget also adds nine state troopers, three crime lab technicians, $1 million for additional social workers and $4.5 million for substance abuse prevention.

"We simply have to deal with substance abuse in this state," Murkowski said. "Nearly half of the calls our troopers get are alcohol-related."

Murkowski's budget proposal at a glance

• $127 million in additional money for K-12 education.

• $145 million for road construction and upgrades.

• $81 million over two years to cities for retirement costs.

• $28.6 million for development of a gas pipeline.

• $6.5 million for small city energy assistance program.

• $1 million for social workers.

• $4.5 million for substance abuse prevention.

• $7 million over the next two years to the University of Alaska for retirement costs.

• $23.9 million over the next two years for the University of Alaska.

• $43.5 million over the next two years for retirement costs for state employees.

The proposal was met with skepticism by some legislators who said the budget is based on unrealistic oil price projections released last week by the state Department of Revenue. The revenue report predicts that North Slope crude oil will average $43.61 through June of next year, when the 2005 fiscal year ends.

The administration will have a better idea of how much it has to spend this spring when the revenue department updates its revenue forecast.

"I can guarantee to the Alaska public that the oil and gas projection is wrong," said Rep. Eric Croft, D-Anchorage. "I don't know which direction it will be wrong."

Croft applauded proposals to fund education two years in advance and provide more money for social workers, but he added that he has not yet read the entire budget. Croft said that in the past school districts have completed their annual budgets before the Legislature and often are left wondering if they'll have to make cuts.

"I support the governor's plan for two-year budgeting for education," he said. "They need to know the funding level so they don't have to fire and rehire teachers."

Croft was suspicious of Murkowski's plans to use interest earnings from oil royalties to pay for his bond proposals, and said the settlement money is part of the Alaska Permanent Fund and might not be available to spend. Spending the royalty money would not affect annual dividends, according to the state Office of Management and Budget.

House Majority Leader John Coghill, R-North Pole, said he believes the state's oil projection is high. "I hope they're right," he said.

He noted that the budget does not include new revenue proposals and predicted that the House of Representatives would introduce tax proposals for a long-range fiscal plan next year.

Rep. Bruce Weyhrauch, R-Juneau, said he had not yet seen the budget proposal on Wednesday but questioned whether all the spending proposals would be possible.

"I am concerned about the basis for the revenue forecast," Weyhrauch said. "The fundamental assumption of high oil underlies the budget, but yesterday oil was at $34.28 a barrel and falling."

• Timothy Inklebarger can be reached at timothy.inklebarger@juneauempire.com.

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