Federal funding cuts will save Alaska money

Spectrum, by Cheryl Frasca

Bringing certainty to the state's future finances is a top priority for Gov. Murkowski's administration. When we proposed our budget in March, we advised the Legislature and Alaskans of two goals: spend less and reduce the state's reliance on its savings to prop up spending. The latter was extremely important because if we continued "business as usual," our savings would run out in two years. Alaska then would face a $1 billion shortfall -- nearly 40 percent of the state's budget.

The Legislature achieved the first goal. The budget it passed was $60 million below FY '03. They weren't as successful at meeting our second goal. Their budget required $525 million in revenue from our savings account, instead of the $400 million target the administration had set. Just as we had said we would do throughout the legislative session, we had no choice but to veto $125 million.

During the veto process we evaluated projects in light of the governor's priorities -- education, transportation and public safety. These priorities provided a template against which to measure competing projects. Critics have alleged we "left money on the table" because we vetoed some federal funds. The answer is yes, we did veto $7 million in federal funds. It's important to remember there is no free lunch when it comes to federal funds. There are strings tied to how the funds can be used and usually the state is required to put up its own funds as a match. If your goal is to get all the federal funds there are regardless of purpose, this would also allow the federal government to set the state's priorities.

In the FY '04 budget, the $7 million we vetoed included the following federal funds ($2.5 billion was approved):

In the Department of Health and Social Services, $135,400 was vetoed because we eliminated seven positions due to a major department reorganization. This also saved $275,100 in state funds. The department still has $895 million in federal funds and $747 million in state funds.

In the Department of Natural Resources, $12,450,000 was vetoed, of which $10,450,000 was from Exxon Valdez Oil Spill funds. The money was to purchase land on Northern Afognak Island for the Perenosa Bay project. This decision was philosophical -- the governor doesn't believe federal funds should be used to purchase ANCSA lands. He also believes EVOS funds should be used in Prince William Sound as originally intended. Another $450,000 in federal funds was vetoed that was to purchase land for the Diamond Creek project, again because he believes more land should be in private, not public, ownership.

In the Department of Environmental Conservation, a total of $4,320,000 was vetoed for water, sewer and solid waste projects ($90.4 million still remains). This includes elimination of 14 lower priority projects (12 others were funded), and a reduction in another project. Funds for water and sewer ($375,000) to rural health clinics constructed with Denali Commission funding was also vetoed, with the expectation that water and sewer costs will be provided by the Denali Commission as part of each facility's cost. Another $225,000 for three solid waste feasibility studies was vetoed because solid waste generally is a lesser health and environmental threat than drinking water and wastewater.

In addition to the above, the state will provide 50 percent of the match on behalf of local communities for federal highway dollars. Previously, the state has provided 100 percent of the match for local projects.

Until increased revenue from resource development starts flowing into the state's treasury, Alaska and Alaskans will face tough choices. The state must adjust to a "lifestyle" it can afford on its current income. This means setting priorities and deciding what the state will -- and won't -- do. It also means scrutinizing every dollar that is spent -- regardless of its source.

Cheryl Frasca is the director of the Office of Management and Budget