Homer Alaska - Business

Story last updated at 12:18 PM on Wednesday, March 7, 2012

Legislature passes session's halfway point

By Tim Bradner
Morris News Service - Alaska

The pace has picked up in the state capitol as the Legislature passed the halfway mark of the 90-day, 2012 session on March 1.

Budget subcommittees are finishing their work in reviewing agency spending plans for fiscal year 2013 in both chambers, and work is also being done on the capital budget by the Senate Finance Committee, which traditionally originates that plan.

Rep. Bill Thomas, R-Haines, House Finance Committee co-chair, who is leading efforts on the House operating budget bill, said the subcommittees closed out their respective agency budgets March 1 and 2 and were to have their recommendations to the full Finance Committee by earlier this week.

The committee heard public testimony on the budget March 6 and 7 and took amendments March 7. The panel will discuss those amendments in committee on March 12 and 13, and have the budget to the full House for action on March 14 or 15.

Sen. Lyman Hoffman, D-Bethel, Finance Committee co-chair, who is leading work on the operating budget, said the Energy Council break this week will put his committee a little behind on its operating budget work but this will not jeopardize the overall schedule.

"In past years we have been able to start work finalizing the operating budgets in the last two weeks of the session. There will be less of a cushion this year, but we'll get it done," Hoffman said.

On the capital budget, Sen. Bert Stedman, R-Sitka, Finance Committee co-chair in charge of that budget, said the Senate has had eight hearings on proposals in the capital budget so far.

"We expect a fairly robust capital budget, similar to last year, with an emphasis on deferred maintenance (on public buildings) and energy projects," Stedman said in a Feb. 28 briefing.

Stedman said he will meet with Gov. Sean Parnell to pin down specific numbers for the capital budget, but the expectation is that it will be in the same range as capital spending in the current budget year, fiscal 2012. That is about $2.8 billion in total, including about $1 billion in federal funds, Stedman said in the briefing.

The current estimate is that the state will have another big revenue surplus of about $4 billion, including the current year and the surplus projected for fiscal 2013, which begins July 1. Oil prices and markets will no doubt change over the next year and a half, to the end of fiscal 2013, but given the current tension in the Middle East and other factors, Stedman said he expects prices to remain high.

The actual surplus between the two years could be more than $4 billion, he said.

Senate leaders will propose putting most of that in savings accounts, most likely the state's Statutory Budget Reserve, an account in the treasury. However, part of it could be appropriated to the public employee pension fund to offset some of the $11 billion projected deficit in the pension fund.

A $2 billion appropriation to the pension fund is the figure being discussed in the Senate, although the House may seek a lower contribution.

By bulking up the pension funds with a special appropriation, the earnings of the funds will be increased and the liability reduced. The state manages the combined pension funds for state, municipal and school employees and has assumed responsibility for much of the deficit for municipalities and school districts.

The deficit, and the resulting long-term liability, is the difference between expected earnings of the money currently in the pension funds and the projected payments to current and future retirees, including medical expenses.

Unlike some other states, pension obligations for public employees are guaranteed in the state's Constitution.

The total spending approved by the Legislature is likely to be close to the governor's proposal for the operating budget of about $8.82 billion, which includes $6.79 billion in spending of state funds, and to the current year level on the capital budget of about $2.8 billion.

However, the continued decline in oil production and the vulnerability of the state to an unexpected downturn in oil prices has become a serious concern in the capitol.

Rep. Anna Fairclough, R-Anchorage, a member of the House Finance Committee, said that the current year budget, approved last year, required an average oil price of $86 per barrel to fund it. This year, because of the decline in production, the break-even price for the budget is likely to be closer to $94 per barrel, Fairclough said Feb. 20 in a briefing by House leaders.

Crude oil prices as of Feb. 20 were $127 per barrel, well above the minimums, so the state's finances seem secure for now, but Fairclough is concerned that with the current decline in production the state could be earning less than it is spending as early as fiscal 2014, the budget that legislators will have to prepare next year.

There won't be an immediate problem because the state has large cash reserves, but at that point the Legislature will have to start drawing down those funds unless spending is reduced. An unexpected drop in oil prices could hasten that.

Tim Bradner is a reporter for the Alaska Journal of Commerce.