Anchorage Daily News

Gov. Sarah Palin on Wednesday announced a savings and spending proposal for the multibillion-dollar windfall Alaska state government is enjoying from record oil prices and the Legislature's move last month to raise taxes on the oil companies.

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What would you do with $4.6 billion?
Here's what Gov. Palin wants to do with the expected budget surplus over the next two years. The legislature would make the final decision.

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The state revenue department forecasts the surplus at $4.6 billion through July of 2009.

Palin wants to place the extra money into several different funds, including $380 million into the main state savings account, the Constitutional Budget Reserve. The governor got immediate pushback on that from both Republican and Democratic legislators, who argued that more needs to be socked away in the reserve. The Legislature will make the final decision on what happens with the surplus.

"I think the huge majority, if not all the surplus, should go into the CBR," said Anchorage Democratic Rep. Harry Crawford, a member of the Finance committee. "That was set up to be our surplus fund."

Palin said she would work with lawmakers if they want to do more to replenish the account, which the Legislature has relied on during years of lower oil prices.

PALIN'S PRIORITIES

The question of what to do with the surplus money is at least as important as the recent wrenching debate over raising oil taxes, several lawmakers said Wednesday. Palin is a conservative but faces budget pressures from rising government costs and demands for more spending on schools, roads, and many other areas. She's also hugely popular, and her recommendations carry a lot of weight.

The governor wants more than half the surplus -- $2.6 billion -- to go into a fund the state uses to pay for schools. That could free up money for other uses that the state would otherwise spend on education and help give school districts long-desired certainty on how much they will have from one year to the next.

But it doesn't necessarily mean a funding increase for schools. Palin telegraphed plans for what could be a modest increase in education spending as well as more revenue-sharing with local governments. But just what spending Palin has in mind won't be clear until she proposes her full budget over the next week. The budget, which will be considered by legislators when they convene in January, covers the fiscal year that begins next July 1.

Palin is also calling for creation of a billion dollar state transportation fund. The state would invest it, with earnings paying for future road and other infrastructure projects.

Legislators said such an endowment wouldn't spin off enough for many roads. But Palin said it's meant to offset the expected reduction in federal highway funds.

Palin also wants to pay $450 million into state teacher pensions. Combined with public employee pensions, they are under-funded by an estimated $8 to $10 billion. The governor said this is just one step in dealing with the pension problem.

SURVEY RESULTS

Palin made her Wednesday announcement at West Anchorage High School. She held a news conference in front of a government class, directing her remarks to the students.

"We won't resign ourselves to just stick away money just to support an increase in government spending in the future, or in the near term even. It's time for a different approach. We need new, sound plans," the Republican governor said.

Palin pointed to an online survey in which she asked Alaskans what they would do with the surplus. The governor said nearly 11,000 people responded.

The survey listed priorities that people could rank, and the largest number, nearly 30 percent of those who responded, said the teacher and public employee retirement pensions should be the top priority. The second-highest was saving for education, followed by energy, transportation/infrastructure, the Alaska Permanent Fund and saving money in the Constitutional Budget Reserve.

"Your input really does make a difference. We've listened to it," Palin said.

Palin's said she wants to create a $250 million alternative energy fund. She said it would be used for energy projects recommended by a strategic energy plan, which could include hydroelectric, wind, geothermal, biomass and tidal power. How the fund would work was vague.

Palin on Wednesday also proposed shifting $2.4 billion from the earnings reserve of the Alaska Permanent Fund into the fund's principal, where it would be off limits to legislators if they ever decided to tap the fund for state services. Palin said it would be the largest deposit into the principal in state history.

BUDGET RESERVE

Anchorage Republican Rep. Bob Lynn was the only member of the state House to come hear Palin's announcement. He sat at a desk near the front of the class and afterward said he was impressed by what he heard from Palin. But Anchorage Democratic Sen. Hollis French, who was also in the classroom, said he would want to put way more into the Constitutional Budget Reserve.

Later, Anchorage Republican Rep. Kevin Meyer said he too would like more in the budget reserve and to pay down the huge public employee and teacher retirement debt. He said the Constitution calls for funding retirement as well as paying back the billions lawmakers have withdrawn from the budget reserve over the years. Meyer is co-chair of the finance committee and will have a lot of say.

Spending the Constitutional Budget Reserve has often been contentious in the past. It takes a three-quarters vote to tap into it. That means the majority party has to negotiate with the minority in years when money from the reserve is needed to balance the budget.

Find Sean Cockerham online at adn.com/contact/scockerham or call him at 257-4344.

The Proposal

$2.6 BILLION

EDUCATION FUND

This is the fund the Legislature will use to pay for schools in the coming years. Putting money into it could free up money for other things that the state would otherwise spend on schools.

$1 BILLION

TRANSPORTATION ENDOWMENT

Earnings for the endowment would be used for future state transportation and infrastructure projects.

$450 MILLION

RETIREMENT FUNDING

This would be used to help pay down the teacher and public employee retirement debt.

$379 MILLION

CONSTITUTIONAL BUDGET RESERVE

This is the state's main savings account.

$250 MILLION

ALTERNATIVE ENERGY FUND

For projects recommended by a strategic energy plan, which could include hydroelectric, wind, geothermal, biomass and tidal power. Survey says ...

Governor's online survey

How 10,903 respondents answered the governor's online survey about what to do with the projected budget surplus

HOW TO SAVE SURPLUS:

29.7% Public employee/ teacher retirement

25.9% Public education fund

13.3% Energy

12.2% Transportation/ infrastructure

11.2% Permanent Fund

10.9% Constitutional Budget Reserve

HOW TO SPEND SURPLUS:

35% Education and workforce development

26.2% Public health and safety

20.3% Resource development

19.7% Transportation and infrastructure

Source: Governor's office

Does the governor's plan make sense? Post your thoughts in the comment section below, and remember, stay civil and on-topic.