Alaska faces tough decisions on budget, lawmakers told

Teal told the Senate Finance Committee the state faces tough budget decisions as oil production -- the lifeblood of the state's economy -- continues to decline.

Among the challenges: an estimated $11 billion in unfunded pension liability and finding ways to limit growth in state government. If government continues to expand as it has, even with relatively modest capital budgets, by recent standards, the state could be running deficits by fiscal year 2015, he said. That projection doesn't include mega projects like an in-state gas pipeline or the Watana-Susitna hydro project, for which the state could wind up being asked to help with financing.

Teal said state agency operating growth has been averaging about 7.8 percent. The Parnell administration has said formula-driven programs, like Medicaid and education, are major drivers of that. Gov. Sean Parnell has proposed a 3.3 percent agency increase for the coming fiscal year, but that could be difficult to achieve, Teal said.

For example, under the Alaska Gasoline Inducement Act, TransCanada Corp., which holds an exclusive license with the state to advance a major natural gas pipeline project, can receive up to $500 million in reimbursable costs. While the governor proposed $60 million for AGIA in fiscal year 2013, Teal said that could leave the fund about $100 million short.

Then there are other issues that lawmakers might want to address, including increased school and renewable energy funding.

Teal said all those things, together, could add about $200 million or more.

He noted the state is looking at a projected surplus of $3.7 billion between this fiscal year and next. And he also noted that with an upfront contribution of $2 billion to the public employees' retirement system, rather than continuing to make increasing direct payments, the state could see savings of nearly $5 billion through 2025.

Sen. Johnny Ellis, D-Anchorage, has proposed creation of a pension trust reserve fund and transferring $2 billion from the Constitutional Budget Reserve Fund to that new fund. In a statement, Ellis, a finance committee member, said Teal's testimony shows the bills are on the right track.

Sen. Bert Stedman, R-Sitka, the committee's co-chair, said the panel is trying to get a more holistic look of the situation and will discuss what it believes to be the most pertinent issues to address. He said he couldn't imagine the committee not dealing with the pension issue with an infusion of equity, perhaps on the order of the $3 billion.

But he said he's not sure yet just how that would happen, whether, for example, money would go into a side account or directly into the pension trust.

He said the state has a lot of money, but not enough to do everything that people want. If it were up to him, he said he'd rank the projects and go from the top, down.

He does anticipate a capital budget in line with last year's $2.8 billion. He and others credit large capital budgets with helping the state while much of the rest of the country felt a greater impact from the softened U.S. economy. He said he doesn't think the state is at a point yet where it can ease up.