JUNEAU — Gov. Sean Parnell on Wednesday laid out a five-year fiscal plan that includes an annual decline in overall spending and a draw of up to $700 million from the state’s savings.
It came as he and legislative leaders look to rein in spending and absorb the near-term hit of a potential oil tax overhaul, with the expectation that tax changes will lead to more production. Parnell has said it will take three to five years under a new tax structure to judge its effects.
The House is working on a version of his tax plan that could cost the state hundreds of millions of dollars next year alone.
Parnell has proposed a spending cap of about $6.8 billion in unrestricted general funds for next fiscal year, which lawmakers are working on. That fund designation refers to money that is not restricted in its use by the law, constitution or other things.
After that, he said in an interview, he is proposing a decline in spending of about $25 million a year, leaving the total for state government, infrastructure and other projects around $6.6 billion or so at the end of the five years.
During the five-year span, Parnell proposed drawing $700 million or less a year from savings. The plan assumes some new oil production and that the state’s revenue forecast for production and prices will be fairly accurate.
He said a project deemed to be of statewide benefit, like a gas line, would not count against the spending cap.
Alaska has about $16 billion currently between two reserve funds.
“I built the five-year fiscal plan around that belief, that we should be able to manage our way with the reserves we have ... by limiting the appetite of government, by limiting our draws on reserves,” he said. “And if we can do that across five years, we will have something for our children and grandchildren, through new production. And if we don’t, if we just keep spending at the same high levels and continue our production decline, we will not have anything left for our kids and grandkids.
“We’re in this for Alaska’s future,” he said, “not for the here and now.”
Critics see the oil tax plan as a dangerous gamble and a giveaway with no guarantee Alaskans will see anything in return. Representatives of BP PLC’s and ConocoPhillips’ Alaska units told the House Resources Committee on Tuesday that a version of the bill, released last week, should lead to more investment and production, but neither quantified that.
Parnell said he has been working with legislative leaders on the five-year plan and said they are “clearly committed” to fiscal restraint.
The Senate versions of the state operating and capital budget total about $6.5 billion in unrestricted general funds for fiscal year 2014, according to figures from the Legislative Finance Division. That number is subject to change.
Differences between the House and Senate versions of the operating budget have yet to be resolved. The House also hasn’t gotten a crack yet at the capital budget, which the Senate usually works on first. The Senate Finance Committee unveiled a version of the capital plan Wednesday.
The spending package includes $1.8 billion in total funds for projects and other items in 2014. But it also includes $196.5 million in supplemental spending items that would be included in the current budget year, $171.5 million of which is unrestricted general funds, according to Legislative Finance.
Heading into this, the state was already facing the prospect of having to dip into savings to cover costs for the current year. A new revenue forecast, expected within days, should shed greater light on the situation.
Parnell proposed just $28.8 million total in supplemental spending items.
The Senate package is about $160 million higher than Parnell proposed for capital and supplemental spending, according to Legislative Finance, which was reviewing numbers.
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