Budget proposal could be in for rough ride

Seeking to spend half of a projected $650-million windfall from high oil prices, Gov. Frank Murkowski's 2006 budget proposal includes large spending increases for roads, education and law enforcement. The governor also proposes to dip into the Amerada Hess portion of the Alaska Permanent Fund to pay for a roads improvement plan.

The Alaska Legislature will consider the governor's budget during the upcoming session, which begins Jan. 10.

So far the proposal has received mixed reviews. While legislators have acknowledged that many of the governor's spending proposals will fund important programs, there are some questions about the sources for that money. Sen. Charlie Huggins, R-District H, said the details would have to be worked out over time.

"It's premature to talk about where the money is going to come from," Huggins said. "The bottom line is, we will spend the people's money wisely. How we work through that will be up to the Legislature."

The spending package includes a K-12 education proposal that provides two years of increased funding for schools at a cost of $127 million. The education proposal also makes permanent an $82-million increase approved by the Legislature in 2003 and provides for what the administration says is a 23-percent increase in overall K-12 spending. The governor's budget also includes a $31-million increase for the University of Alaska, according to an administration press release.

Also included in the governor's proposal is energy assistance for small communities and $27.1 million for gas pipeline work in the next fiscal year.

This budget stands in stark contrast to Murkowski's fiscal year 2004 budget fiscal plan. The 2004 budget included what were described as draconian cuts to many programs, including a controversial decision to cut the longevity bonus for seniors. The cuts were eventually made by Murkowski himself after the Legislature refused to act to meet the governor's demands for a more streamlined budget.

At that time, Murkowski was beginning to pressure the Legislature to pass his percent-of-market-value plan for the permanent fund, contending that the state was approaching a fiscal crisis if the Legislature didn't act to modernize the way the fund is managed.

Some legislators were reluctant to sign off on the POMV approach, citing the rising price of oil as a sign that there was no impending fiscal crisis. The idea of changing the way the permanent fund is managed is simply too controversial for some legislators, according to Rep. Carl Gatto, R-District 13.

"If you're in the House and you struggle to get 28 votes to pass [the POMV plan], knowing that in the Senate it's going to fail miserably," Gatto said, "you know you're sticking your neck out. Some people look at that and wonder, what is the point of taking that kind of chance when there's no chance of the legislation making it out of the Senate. The goal of some of these legislators is to get re-elected. That's going to affect how they vote on some things."

Whatever the reasons, the Legislature failed to sign off on the POMV plan when the governor was asking for cuts and claiming there was a budget shortfall. Now, with a projected $650-million surplus resulting from higher-than-expected oil prices, the governor is asking the Legislature to reverse course and pump some of that money into infrastructure and other capital improvements.

"Because a budget reflects values, I am proposing to the Legislature that we use some of the windfall to not only balance next year's budget, but to advance some of the goals on which this administration was elected into office," Murkowski said.

Newly elected District 15 representative Mark Neuman said he hasn't made up his mind about how to approach the 2006 budget yet.

"I keep hearing this word 'windfall'," Neuman said, "and it's somewhat deceptive in my mind. All I know is that we need to take care of what's on our plate right now. A certain amount of that money we'll need to use to play catch-up, and a certain amount we'll need to put in the bank."

As far as how that should be broken down, Neuman said it's simply too early to comment.

"I don't have any specific priorities right now," Neuman said. "I won't know about that until I get a chance to look at things more in depth. I don't have any more information on how the budget should be spent right now than the average guy on the street. I don't have access to that until I get [to Juneau]."

The governor and many of the legislators in Juneau were elected as fiscal conservatives, and some of them think they should stay that course.

"How would we be behaving if we didn't have the windfall," Gatto said. "That's probably a good way to behave now. It's a one-time good deal, and we don't have a crystal ball. Maybe next year we'll need that money just to get by."

Gatto said he was in favor of spending up to half of the surplus, but only on capital expenditures and only if the projects aren't going to cost Alaska more money for maintenance in the future.

The governor said this striking shift in available revenue should not be taken as a sign that Alaska's economy is out of the woods. This potential windfall stands in contrast to a $363 million Constitutional Budget Reserve draw that was anticipated at the end of the last legislative session, Murkowski said. He added that such a dramatic change in state revenues underscores the need for legislative action on a fiscal plan.

"With economic factors pointing toward decreasing revenue from oil over the next decade, I've crafted a budget that helps fix current problems while investing in future projects that will lead to Alaska jobs," Murkowski said. He said all of his proposed expenditures are one-time capital programs that will not require future spending, and that much of what he has proposed will set the stage for future jobs in the state.

One potential stumbling block may arise from the governor's recommendation to use the Amerada Hess funds. The fund resulted from a 1989 lawsuit between the state and North Slope oil producers.

While Amerada Hess funds are managed under the permanent fund, they cannot be included in the dividend equation. For that reason, according to Murkowski press spokesperson Becky Hultberg, the funds just sit in the account, continuing to grow.

The governor thinks using the Amerada Hess funds for infrastructure improvements is a creative way to fund projects without negatively affecting Alaskans.

Some legislators get nervous whenever the permanent fund enters spending discussions. Even though the Amerada Hess funds have no effect upon dividend checks, the hands-off attitude may be a sore point.

Charlie Huggins, R-District H, said every legislator he's ever talked to is sensitive about any kind of spending from the permanent fund. Huggins said the debate over how much money will be spent -- and where that money will come from -- will be settled by legislators after the session begins.

Though the formal debate has yet to begin, it seems the governor's budget may be in for some tight scrutiny in the Legislature, and his desire to pass a fiscal plan could be in for an even rougher ride than in the past.

"We've been shouting wolf on the fiscal plan for 10 years," Gatto said. "We've called for a crisis, and it's never happened. With that kind of track record, is it likely we'll make a broad sweep and make a major change? I don't think so. Whatever changes we make will be incremental, and they'll be very minor at first."