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Governor, lawmakers launch budget dialogue with cuts in mind

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published December 11, 2014

JUNEAU -- Gov. Bill Walker and legislative leaders are meeting this week to begin discussions about reducing what's expected to be a $3.5 billion shortfall if oil prices remain low.

That deficit is currently expected for fiscal year 2016 if spending is not reduced, and would come on top of a $3.5 billion deficit expected in the current fiscal year.

If nothing is changed and those massive estimates prove true, the state expects to still hold $6.5 billion in savings in its Constitutional Budget Reserve Fund in 1 and a half years -- not counting the $51 billion Permanent Fund, said Jerry Burnett, deputy revenue commissioner.

An effort to begin pursuing reductions began Wednesday when Walker and his budget director, Pat Pitney, met with incoming House Finance Committee co-chairs Mark Neuman, R-Wasilla, and Steve Thompson, R-Fairbanks. Walker has said he would submit former Gov. Sean Parnell's $5.5 billion budget for 2016 as a placeholder to the Legislature on Monday, but seek further reductions.

The introductory meeting with House lawmakers was broadly focused on laying out the scope of the state's fiscal problem and emphasizing the need for budget reductions, said Pitney.

A similar meeting designed to start a dialogue with Senate leaders is planned for Friday, she said.

The 90-day legislative session begins Jan. 20.

Walker said Thursday in an email he'll fulfill a campaign commitment in the coming weeks, asking agency directors to find 5 percent in savings.

Walker said he is not pursuing such ideas as implementing the first personal income tax since 1980 or tapping the earnings of the Permanent Fund, changes that would diversify a revenue stream almost entirely dependent on income from oil production.

"Our initial focus is on budget reductions," he said. "We are not focused on additional revenue streams."

Key lawmakers have also said cuts must come first.

"I don't think you'll see that coming from the Senate," said incoming Senate President Kevin Meyer, R-Anchorage, referring to new taxes or using the Permanent Fund earnings to help pay for state services.

"When you start talking about those issues, you're talking about taking money from people, and it impacts their livelihoods," he said. "Until we prove we have our budget under control the general public won't accept that. We need to make as many reductions as we can make first."

Incoming House Finance leaders Neuman and Thompson, in a press statement about the meeting with the governor, said they are looking forward to working with the new administration and want a "sustainable budget."

Neither returned phone calls seeking comment.

Lawmakers have cut state spending in the last two years, focusing largely on reducing the capital budget. Parnell's "work-in-progress" budget for fiscal year 2016 shrank from the current year, from $600 million to $200 million, according to an analysis by the Office of Management and Budget.

That capital budget can see further cuts, including striking $20 million for the Susitna-Watana dam, Meyer said. "You could put that back on the shelf again," he said, as it was in the 1980s. "We can't do everything."

The operating budget, with its large cost drivers for health care, education and retirement, is likely to also get significant attention from leaders looking for cuts.

"That will be elephant in the room," said House Speaker Mike Chenault, R-Kenai. "We'll have to look at every program."