Anchorage Daily News

The Alaska Legislature convenes Tuesday, and many of the biggest decisions will involve what to do with a budget surplus that's liable to be around $4 billion. Key lawmakers are saying they'll save, and not spend, at least a big portion of it.

If they do, they'll be making history. The Legislature in the early '80s saved hundreds of millions of windfall dollars each year by putting them in the Alaska Permanent Fund. But that was a long time ago and was unusual.

There is always an urge to spend whatever money comes in, and that will be no different this year. Legislators say Alaskans agree it's good to save money -- except when it comes to whatever their own priority is.

"Everybody has someplace they want to spend these billions of dollars," said Anchorage Republican Rep. Mike Hawker.

The decision this fall to retroactively raise state taxes on the oil companies has combined with high crude oil prices to leave the state swimming in cash.

Just how much the surplus will be depends on oil prices. Lawmakers expect the surplus left over from the current fiscal year, which ends in June, could combine with more than $3 billion expected in the coming year to give them a windfall in the $4 billion range.

Juneau economist Gregg Erickson has been watching Alaska Legislatures for 35 years.

Erickson said he's only seen windfalls saved six times in those years. Four of them were in the early 1980s. The other two were recent examples of putting money into an education fund, Erickson said, and that was really just a placeholder for the money to be spent later.

There is a Constitutional Budget Reserve, created after legal settlements with the oil companies. But Erickson said legislators have evaded their legal requirement to put back what they take out of it.

FLUSH WITH MONEY

Top state lawmakers say a huge windfall like this one is a rare event and they want to save at least part of it.

There is also some bipartisan criticism of Gov. Sarah Palin for not including more savings in her spending proposal to the Legislature. Palin's plan includes putting $380 million into the Constitutional Budget Reserve, creating endowments for transportation and alternative energy, swelling the fund for schools, giving more dollars to local governments and paying $450 million toward the multibillion state pension liabilities.

Sitka Republican Sen. Bert Stedman argued there needs to be more savings in the mix.

"I think there's going to be strong support within the Legislature to save these monies," said Stedman, who has a lot of say as co-chair of the Senate Finance Committee.

Oil production is steadily declining in Alaska, a fact that's being masked by the high price of oil. Once the prices drop, the amount of money coming to the state will plummet. The state gets more than 85 percent of its revenue from oil production. That includes money from production taxes, royalties, property taxes and corporate income taxes.

Stedman wants to give schools more money and consider putting the rest into the Constitutional Budget Reserve. The CBR is the state's main savings account and lawmakers draw on it to balance the budget in years when low oil prices bring deficits.

Stedman said he thinks past legislators have taken care with the state's money. There is roughly $3 billion left in the budget reserve and $38.6 billion in the Alaska Permanent Fund -- most of which legislators are forbidden from touching.

Anchorage Democratic Rep. Mike Doogan doesn't sound ready to place any bets the Legislature is going to save the surplus.

"If the Legislature actually shows some self-restraint in spending it will be the first time in the history of the state of Alaska," he said.

He said the exceptions are those early '80s deposits into the Permanent Fund. Doogan said he has a bill drafted that would basically take the entire current surplus and put it into the Constitutional Budget Reserve.

Doogan said the state needs to make sure that it has money in the future for needs like police protection, health care, you name it.

"The oil fairy has once again tapped us with her magic wand, but when that stops what are you going to do?" Doogan said.

WHAT ARE YOU GOING TO DO?

Putting money into the Constitutional Budget Reserve is touchy because it takes a three-quarters vote to tap into it. That means the legislative majority must negotiate with the minority to get at the money.

House Majority Leader Ralph Samuels said he's got another idea. Samuels said he's interested in creating a new constitutionally protected fund that would house most of the surplus. That new fund would be invested and 4.5 percent of it would be made available to the Legislature each year for spending.

That plan would require a two-thirds vote of the Legislature to put it on the ballot for the public to decide. Samuels, a Republican from Anchorage, conceded it could be a tall order to get that many legislators to vote for the idea.

Anchorage Rep. Hawker said he thinks all the money from the recent oil tax hike should go to paying off the state's teacher pension liability. It could be paid off in just a couple years, he said, and then the Legislature could do the same for the public employee pension debt.

The state public employee and teacher retirement systems have an unfunded liability of $8.5 billion to $10 billion. That's the projected gap between the retirement systems' total assets and the amount in benefits they are required to pay out over the next 25 years.

The retirement system liability is a huge burden on school districts, municipalities and state government.

"When we have the money to fix it we should do it," said Hawker, who is on the House Finance Committee. "It helps the state because it takes off the continuing pressure to increase the amount we have to fund each year."

WHERE TO SPEND?

Hawker is the prime architect of the health and social services budget in the House. He's open to a modest spending increase in that area, saying that this is a year to "reinforce the foundation" of the system but not to create an expansion of it.

Lawmakers are liable to press for spending on state infrastructure projects, like a $10 million expansion of the Port of Anchorage. Sitka Republican Sen. Stedman said ferries need replacement and money should go for road improvements.

"Alaskans want us to put the money in savings but virtually every community has a whole list of (infrastructure) needs," Stedman said.

There seems to be fairly universal agreement that schools will get more money this year.

Anchorage Democratic Sen. Hollis French said he'd like to see half the surplus go into the Constitutional Budget Reserve, with schools his biggest priority in dividing up the rest.

This is the first year lawmakers are under the voter mandate to limit the regular legislative session to 90 days. Most legislators seem to think the surplus will be the big issue of the regular session, with a likely special session to follow on natural gas pipeline issues.

"If last year was about corruption and oil taxes, this year will be about the budget and gas line," French said.

Read more from Sean Cockerham on our Alaska Politics blog at adn.com/alaskapolitics, or call him at 257-4344.

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