By law, Alaska’s governor is required submit a budget by December 15. Having been in office for only two weeks, Gov. Bill Walker opted to submit his predecessor’s $5.2 billion operating budget on Monday, without endorsement. But he did make some changes to former Gov. Sean Parnell’s capital budget. APRN’s Alexandra Gutierrez reports.
The capital budget Gov. Sean Parnell was working on was already slim. At $200 million in state spending, it was a fraction of the $1 billion and $2 billion appropriations Parnell authorized early in his administration, when oil prices were high and the state treasury was flush.
With oil prices now crashing, Gov. Bill Walker has halved Parnell’s proposal to $106 million in unrestricted general fund spending — the money that legislators can appropriate with no strings attached.
“This is ground zero on the capital budget,” says Pat Pitney, the new director of the Office of Management and Budget.
The capital budget submitted on Monday is largely made up of items that come with federal grant money. Only a few items — a couple of water treatment plants, a sewage project, a school project in Kivalina that the state is legally mandated to complete because of a lawsuit over rural education disparities — have no federal funding attached.
“This is an unendorsed budget,” says Pitney. “We haven’t had time to evaluate all of the projects. We did know we want to keep the transportation funds and those projects that rely heavily on matched funding.”
According to the new capital budget, the state will seek $1.2 billion in federal grants, mostly for airport and road improvements.
Not everything with matching federal funds survived the new budget. A half-million dollars for maintenance on shooting ranges was slashed, even though it was mostly federally funded. Walker’s budget also cuts funding for megaprojects like the Susitna-Watana dam and a 200-mile road to the Ambler mining district — megaprojects that have received considerable design and development money in the past. A line for the Knik Arm crossing was also zeroed out, even though Parnell’s budget only included federal funding for the proposed billion-dollar bridge. Pitney says that’s because in the long run, it is a “major, major commitment.”
“It’s one of the large projects the transition has to take a harder look at,” says Pitney.
The Walker administration will review that project, and others, between now and the legislative session to see if they should be put back in. The governor has until February 18 to make changes to his budget.
But Pitney’s not expecting a lot of projects to get added. She says that any extra items should neutralize the revenue spent on them in some way.
“Are there things now that if you invest in can either return revenue or reduce costs in the future?” Pitney asks.
Spending on a pipeline to get the state’s natural gas reserves to market could fall into that category.
After the governor’s budget is submitted, it gets sent to the Legislature, where lawmakers can add in their own budget priorities. Last year, Parnell’s original budget proposal included $430 million in state spending, but the final budget grew to nearly $600 million.
Pitney says there isn’t a hard cap for legislators to keep in mind when it comes to infrastructure spending this year.
Rep. Steve Thompson, co-chair of the House Finance Committee, is also undecided on a target spending number. But the Fairbanks Republican expects appropriations to be substantially reduced from previous years, with critical projects for health and safety getting the most consideration.
“I don’t think people are going to be wanting to flex their muscles too much with the financial situation the state is in,” says Thompson.
Thompson adds that he wasn’t surprised to see the capital budget stripped mostly to projects with matching funds.
“I didn’t think there was going to be anything other than possibly federal grant match money,” says Thompson. “I’ve been warning people that’s what it was starting to look like prior to this coming out.”
Thompson adds that operating expenditures, now budgeted at $5.2 billion, pose an even greater challenge to lawmakers.
With North Slope crude now below $60 per barrel, lawmakers may have to draw nearly $7 billion in savings to pay for the budget that passed this year, along with the new one they will be drafting. If no changes are made to the spending plan submitted Monday, the Department of Revenue expects the state to run a $3.2 billion deficit.