Legislators skeptical about Palin's state budget proposal

Palin on Monday released her plan for the next budget year, which starts in July. It calls for a small boost in spending on state agencies but less money for construction projects, which is where legislators spent freely this year while the state enjoyed a huge budget surplus from record high oil prices. The prices have since plummeted, bringing revenues from state oil tax and royalties down with them.

The state now expects to need more than $400 million from savings to balance the current year’s budget, which has another six months to go. Palin said her plan for the year after would keep that from happening again.

“We’ve got to be prudent and live within our means. I don’t want any Alaskan to assume that government is the answer,” said Palin, using a line she also employed on the campaign trail during her recent unsuccessful run as Republican nominee for vice president.

But state legislators challenged Palin’s claim her budget would not leave the state with a deficit. Palin is basing it on her Revenue Department’s prediction oil will average $74.41 a barrel over the new budget year starting in July. Oil is at $38.76 and legislators like Anchorage Republican Rep. Mike Hawker have no faith in the forecast.

“I don’t think that anyone believes the numbers they are using are particularly well thought out,” said Hawker, a key budget leader as co-chair of the House Finance Committee.

Also skeptical was his counterpart on the Senate Finance Committee, Sitka Republican Sen. Bert Stedman.

“I think the oil price forecast at $74.41, chances are it’s most likely optimistic. And it won’t take much of a reduction in the oil price to put the budget under water,” he said.

It’s the Legislature that decides how much the state spends. The governor gives lawmakers a proposal, negotiates during the legislative session, and can wield a line item veto in the end.

Palin’s budget plan calls for a 2 percent general fund increase for state agency operations.

She’s proposing to cut in half general fund spending on the state construction budget. But that cut of $362 million would be offset partially by additional construction money coming from a new place — $238 million out of an “Alaska Housing Capital Corporation” savings fund that the Legislature created three years ago.

Palin’s plan would spend down most of that savings fund. She’d use it to pay for projects including school construction and expansion at the Port of Anchorage. An estimated $20 million of it would go to reimburse the Canadian firm TransCanada for its work in pursuit of a natural gas pipeline to the Lower 48.

Palin’s general fund budget proposal for next year — with the housing corporation money added in — totals about $5.1 billion in state funds. Current year’s state general fund spending is $5.25 billion, not counting the amount put into savings or the $1,200 “resource rebate” checks sent to all qualifying Alaskans this fall. No money for resource rebate checks is included in Palin’s new budget.

Palin characterized it as a 7 percent general fund spending reduction — but that does not factor in her decision to spend the housing corporation savings fund.

The Legislature meant the fund to be used for construction projects. But there will be debate over whether this is the time to drain it and over the fact Palin’s budget proposal doesn’t leave room for legislators to include their own projects. Some legislators will argue construction spending is needed to help the economy.

Along with the small increase for state agencies, Palin’s plan includes a 5 percent boost for the state’s school funding formula and pupil transportation. Earlier this month, Palin proposed more spending next year on low-income children’s health care, Head Start, and a modest test program of state funded preschool.

House Minority Leader Beth Kerttula, a Democrat from Juneau, said Palin’s health care and preschool plans are a start but don’t go far enough to meet the need. Legislators will spend the coming weeks scouring the budget for details.

“I want to see if there really are cuts and where they are,” Kerttula said.

Palin introduced her new budget in Juneau Monday morning. But she left after a half hour, having answered three questions, to attend the ceremonial electoral college vote at Centennial Hall, in which Alaska’s three national votes were cast for Palin and her former running mate, John McCain. Palin’s budget director and other cabinet members remained behind to answer questions from reporters.

Find Sean Cockerham online at adn.com/contact/scockerham or call him at 257-4344. Daily News reporter Tom Kizzia contributed to this story.