With stroke of governor's pen, Alaska back in deficit spending

Gov. Sean Parnell Tuesday signed an oil tax cut bill that will guarantee budget deficits for years to come at projected oil price and production levels, and then praised himself and legislative leaders for showing fiscal restraint.

Parnell said Republican leaders of the Alaska Senate and House of Representatives agreed with his call to limit spending, which was evidenced by the small number of vetoes.

"What that shows is we have a legislature that is fiscally restrained with the public's dollars," Parnell said. "They worked hard at reducing spending, they were successful."

In a total budget of $13.2 billion, including general funds, Alaska Permanent Fund dividends and federal funds, there will be a projected deficit next fiscal year of $668 million. There were only a few small technical vetoes.

Senate President Charlie Huggins, R-Wasilla, House Speaker Mike Chenault, R-Nikiski, and other legislators joined Parnell at bill signings at the Anchorage Chamber of Commerce and then more bills later at his Anchorage office.

Despite Parnell's claims of big budget cuts, which he said came to 14 percent of last year's budget, the "cut" came from spending less on this year's capital budget, which is typically the additional amount spent each year on one-time costs such as new buildings, infrastructure or other projects.

Capital spending this year will amount to $2 billion, compared to last year's $3.1 billion.


Parnell said that spending $1.1 billion less per year will continue on for the next five years.

"We will realize that $1.1 billion in savings for Alaskans for every year for five years," he said. "That's $5 billion more in the treasury for Alaskans."

The state's operating budget of $8.6 billion went up by about 1 percent this year.

Sen. Bill Wielechowski, D-Anchorage, voted against the operating budget in the Senate and criticized the budget Parnell signed Tuesday.

"It's not a responsible budget, in my opinion, it's not living within our means," he said.

Wielechowski said that given the fact that the oil tax cuts of Senate Bill 21 take effect on Jan. 1, of 2014, midway through the Fiscal Year 2014 budget, more cuts should have been made so as to avoid exhausting the state's savings too quickly.

Bigger budgets of recent years came when the state could afford them, and also included big contributions to savings.

"I've supported operating budgets in the past because we've had a responsible, reasonable revenue stream," he said. "They took away the reasonable revenue steam by giving a massive tax cut to the oil industry."

Parnell, though, said the state could afford the tax cuts, and can afford to spend $700 million a year on state government operations, and can even afford to dip further into those savings for big infrastructure such as a possible in-state natural gas pipeline.

Those reserves total $19 billion, he said, including such things as the Constitutional Budget Reserve and even the Alaska Permanent Fund's earnings reserve, from which permanent fund dividends are paid each year.

He said he wouldn't propose dipping into the corpus of the fund, the principal of the fund from which earnings are generated.

Parnell acknowledged that state government would have to spend less, but said he was sure that tax cuts would lead to new oil production, and then new revenue.

"There is no doubt that our state government must spend less, especially as we ramp up oil production in Alaska," he said.

He refused to say during the legislative session how much more oil or revenue would come in, where it would come from or when it would come from if his tax cut passed, and provided no additional information Tuesday.

He did say "the Alaska energy comeback begins today," at the Chamber signing ceremony for Senate Bill 21.

It is a given, he said, that reducing oil taxes would mean more Alaska oil production, and mean a bright future for the state's young people.

It would do that by making Alaska more competitive with other oil producing areas that are seeking industry investment, he said.


He again claimed that reducing oil taxes in the United Kingdom had already succeeded in doing that in the North Sea, which he'd seen on a recent visit to Aberdeen, Scotland, from which the country's North Sea fields are managed.

"Investment is up, production is up, jobs are up," Parnell said.

Parnell and members of his administration have been saying that for some time, but the country's leading offshore oil industry group says oil production is actually declining in recent years. According to Oil & Gas UK, 2012's production was down 14 percent from 2011 and 30 percent from 2010, and is projected to decline again this year.

While Parnell was inside the Dena'ina Center getting cheers from the chamber members, protesters outside were gathering signatures for a referendum to overturn Senate Bill 21.

Supporter Ray Metcalfe, a former Republican legislator, said he was confident they'd gather the needed signatures to force a public vote, and then win that vote.

"If the state fails to get its share of oil revenues and build up investments, the Permanent Fund, after the oil runs out Alaska will be the poorest state in the nation for decades to come," Metcalfe said.

Recent Anchorage Assembly write-in candidate Nick Moe held a sign that read, "It's up to us. Owner state or owned," echoing the words of former Gov. Wally Hickel.

Also at the chamber, Parnell signed House Bill 4, advancing planning for an smaller natural gas pipeline, and Senate Bill 27, under which Alaska will study taking over some wetlands permitting duties from the federal government.

Jerzy Shedlock contributed reporting from Anchorage. Contact Pat Forgey at pat(at)alaskadispatch.com