Parnell proposes billion-dollar cut in capital projects

rmauer@adn.comDecember 14, 2012 

Budget Director Karen Rehfeld answers questions at a news conference in Anchorage Friday, December 14, 2012 on Gov. Sean Parnell's 2014 proposed budget. The budget would cut more than $1 billion from current spending, mainly by reducing capital projects.

RICHARD MAUER — Anchorage Daily News Buy Photo

Gov. Sean Parnell said Friday that his proposed 2014 budget will cut $1.1 billion from current spending by targeting the huge capital budgets that have emerged from Juneau during the recent years of plenty.

In a series of events that unveiled his proposed spending plan for the next fiscal year, Parnell said the recent treasury windfalls from oil tax revenues are fading as the price of oil declines, production from aging North Slope fields drops, and oil companies take advantage of existing tax credits doled out to industry.

In a luncheon address to the Anchorage Chamber of Commerce, Parnell said the state remains strong.

"We are in fact a solid state, and solid we shall remain," Parnell said.

Parnell proposed an increase in the state operating budget of eight-tenths of a percent, covering the costs of new administration priorities, inflation, and mandated spending on programs like Medicaid. He's also budgeting a surplus of $508 million that could be put into savings or redirected by the Legislature to additional construction projects or local needs.

The net loser would be state-funded public works projects, cut a full billion dollars from $2.8 billion to $1.8 billion. In the last two budget cycles, the co-chairmen of the Senate Finance Committee, Republican Bert Stedman of Sitka and Democrat Lyman Hoffman of Bethel, argued that the stimulus effect of big capital budgets during a time of recession was an important factor in pushing for big spending.

But the worst of the recession appears past and there's a new Republican-led Finance Committee in the Senate as a result of the election. Incoming Senate President Charlie Huggins, R-Wasilla, said in a prepared statement that Parnell was "headed in the right direction."

Parnell said he recently briefed legislative leaders from both parties on his proposed budget and asked them to pledge to hold spending limits as they did last year -- but not the year before, when Parnell enforced his will through line-item vetoes.

"A self-imposed, reasonable limit is the key to successful and more sustainable spending," Parnell said.

New projections show a drop in revenue of $1.6 billion for the remainder of this fiscal year and all of the next, Parnell said. To make it through the current fiscal year, which ends June 30, the state will have to tap budget reserves for some $400 million, Parnell said. And those revenue shortfalls don't take into account the likelihood that the Legislature will cut oil taxes in its next session, as the Republican majorities of both chambers have pledged.

House Democrats said Friday they have yet to hear a clear explanation of how the revenue decline occurred so big and so fast -- at least in forecasts.

Minority leader Beth Kerttula, D-Juneau, said Friday she has a "healthy skepticism" about the numbers after talking to Parnell's Revenue Commissioner, Bryan Butcher. Rep. David Guttenberg, D-Fairbanks, a Finance Committee member, said he supports "lean and mean" budgets but believed the calculations may be flawed, and that could hurt the state's economy.

"We have to be very conscious about not contracting our economy very fast," he said.

Butcher said he didn't understand the criticism. "I don't know what they're basing it on other than politics," he said.

The budget includes money for some of Parnell's top priorities -- 15 new village public safety officers, 15 new state troopers for the Railbelt, and additional prosecutors in the cities and the Bush to focus on domestic violence and human trafficking.

Parnell wants to build a plant on the North Slope to provide liquefied natural gas for Fairbanks and propane for the Interior, and has included money for gas lines from the North Slope to Southcentral Alaska. The budget has another $95 million for the proposed Susitna-Watana hydroelectric project.

Budget Director Karen Rehfeld said the "roads to resources" program includes another $8.5 million for the proposed road to Ambler in Northwest Alaska and $7 million to improve the Dalton Highway.

Reach Richard Mauer at rmauer@adn.com or 257-4345.

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