Crunch time in Juneau: With two weeks to go, tensions build in Capitol

Posted: Sunday, April 04, 2010

With two weeks left before adjournment, legislators are racing the clock in Juneau to get priority bills in position for a last-minute push for passage. State budget bills are moving in an orderly fashion.

Both the House and Senate have now passed their versions of the fiscal year 2011 operating budget and the House passed its approval for fiscal 2010 supplemental appropriations.

The most eagerly awaited budget measure, the state capital budget and what construction projects are included, will appear in draft form early in the week of April 15, Senate Finance Committee co-chair Bert Stedman, R-Sitka, said in a briefing by Senate leaders. Stedman is in charge of coordinating the capital budget in the committee.

Neither Stedman or his co-chair, Sen. Lyman Hoffman, D-Bethel, would reveal how much they will recommend for the capital budget.

"It will be a reasonable budget. It won't be earth-shattering," Stedman said.

He noted, however, that legislators had held off on capital spending last year when revenues were tight.

Hoffman said there is some catching up to do, but putting more money in savings will be a first priority. The revenue picture continues to improve, for the short term, he said. Oil prices are averaging $80 per barrel, higher than estimates made in the state's last revenue forecast in December.

That will put an additional $220 million in the treasury in the final months of the current fiscal year, Hoffman said. With a healthy surplus projected for both 2010 and 201l, the Legislature will approve $1.1 billion to forward-fund state funding for schools and make a $450 million payment to the constitutional budget reserve to repay past withdrawals.

That could still leave about $850 million available, Hoffman said in the briefing.

One scenario the Senate committee could consider is a capital budget in the range of $500 million in state funds, which would still allow lawmakers to appropriate $350 million to savings.

For the short term, it's a good place to be.

"We're headed toward $12 billion in total savings," Senate majority leader Johnny Ellis, D-Anchorage, said in the briefing.

Other legislators still are concerned about the long-term outlook. Reps. Alan Austerman, R-Kodiak, and Mike Doogan, D-Anchorage, are members of a House special fiscal policy committee, and both express concerns about the rising state budget and shrinking oil production.

"The information we've seen indicates that for the past six or seven years, we've seen 10 percent annual increases in the budget, and this year will be no exception. Meanwhile, we're seeing continued 6 percent annual declines in oil production, which pays for 95 percent of our budget," Doogan said. "Somehow we've got to get out of this cycle. Some say we should be saving every dime we can."

Things get tense

For now, things appear to be humming along in the Capitol building, but there are tensions growing as the clock ticks toward the Arpril 18 adjournment.

One issue headed toward a conflict with Gov. Sean Parnell is how to finance several major construction projects in the capital budget. Senate leaders are crafting a plan to put a major new biological sciences building at the University of Alaska Fairbanks, a proposed new sports facility for the University of Alaska Anchorage and several new schools in rural Alaska into a state general obligation bond issue that would go before voters in the fall general election.

Parnell had put the UAF building as well as a proposed new crime lab in the capital budget he proposed in December and said he was willing to discuss other projects with legislators. But the governor also wants to finance the buildings with pension-obligation bonds, a financing mechanism where agencies that use the facilities pay off the bonds.

A state general obligation bond is usually an inexpensive way to finance construction because the state of Alaska has an excellent credit rating, but Parnell said he doesn't like that approach.

"Certificates of participation bonds gets construction going faster, creating jobs," Parnell said in an interview.

The general obligation bond approach must wait for the November election, which means about a year delay in getting work under way. There's always the chance voters could turn down the bond issue, too.

That approach would also miss the opportunity available this year to use federal stimulus bonds, which are relatively inexpensive.

"I hear of some states doing projects for 3 percent, and that's less than what we can earn keeping our cash in investments," the governor said.

Parnell said the certificate of participation approach also acts as a restraint on spending because their use is specific to certain projects.

"When the Legislature puts together a G.O. bond package there is a tendency to put everything but the kitchen sink in it to make it attractive to voters," Parnell said.

That appears to be happening with the current Senate plan, with major buildings at the university's Fairbanks and Anchorage campuses, as well as rural schools, being included in the discussion.

Bills come and go

Some major legislative priorities appear to be falling by the wayside.

An effort to reduce the tax rate in the oil and gas production tax appears already to be a casualty of the short 90-day session.

Rep. Craig Johnson, R-Anchorage, has sponsored House Bill 308 that essentially cuts the tax in half in an effort to stimulate new industry activity. But after initial shows of strong support in the House, a tepid reaction in the Senate and the tight schedule, the bill's momentum has stalled.

In the Senate briefing, Stedman said he expects a more thorough review of the tax rate when the Legislature reconvenes in January, with a review of industry activity, production decline, employment and investment by the companies.

One thing troubling legislators, Stedman said is the sharp difference between reports from the Department of Labor that investment by the companies is increasing and reports by the companies that it is declining.

"We're hearing opposite messages. We've got to get everyone on the right page," Stedman said.

A petroleum tax bill the Senate is working on still has momentum, though. Stedman is pushing Senate Bill 305, a bill to "de-couple" gas and oil for the purposes of the production tax.

However, technical complications as to how the tax would affect current gas being produced in Cook Inlet and on the North Slope, where it is used for fuel and repressuring the oil reservoir, are causing some delays as the bill is redrafted, Stedman said.

The concern is that the current method, which taxes both oil and gas together in terms of their combined energy value, would result in revenue losses to the state under certain circumstances if a gas pipeline is built.

Major oil producers say they aren't concerned about the bill to de-couple oil and gas because the state tax would be rewritten anyway when a negotiation on fiscal terms on gas production for a pipeline takes place.

However, producers are worried that the bill, unless properly drafted, could result in immediate tax increases on gas produced in Cook Inlet and the North Slope.

Taxes on gas produced in Cook Inlet and sold to utilties are passed on to consumers in the form of higher gas and electric rates, as well.

A set of other energy-related bills are making steady progress. House Bill 280, by Rep. Mike Hawker, R-Anchorage, creates incentives for urgently needed natural gas storage in Southcentral Alaska.

It has passed the House and is before committees in the Senate. Another bill to expand a tax incentive for natural gas exploration, aimed mainly at Cook Inlet, is advancing though the House. House Bill 229 is sponsored by House Speaker Mike Chenault.

Bills to consolidate and strengthen efforts to plan an in-state gas pipeline to Southcentral Alaska in case the large pipeline project falters are also making progress.

Other bills of interest to business are making steady progress. Several bills that streamline and expand loan and investment programs of the Alaska Industrial Development and Export Authority, the state's development finance agency, are at advanced stages of consideration.

A new microfinance loan program to help small businesses, modeled on an federal Small Business Administration program, is also moving. A major rewrite of the state procurement code has passed the House and is in the Senate.

One high-priority initiative that may be in danger is Gov. Parnell's college scholarship program. The govenor's plan would award scholarships based on merit to high school graduates earning at least a C grade on a variety of required math and science courses, but that approach hit tough going in the Legislature.

Education committees in both the House and Senate added a "needs-based" component, meaning that some scholarships could be awarded to needy students. However, the big problem is how to fund the cost of the program in a way that would be sustainable, according to Senate President Gary Stevens, R-Kodiak.

"It's premature to say where this will go," Stevens said.

Democrats are sharply opposed to the governor's merit-only approach, and say the proposal is dead.

"People are all over the place on this," Rep. Berta Gardner, D-Anchorage, said in a separate briefing in the House. "The governor's plan is just off the table. It's 50-50 whether this will go anyway."

Not doing something to help Alaska's college-age students isn't acceptable either, Rep. Dave Guttenberg, D-Fairbanks said.

"How can we not do something?" he said. "Given the skills shortages we are facing, and the labor requirements of a gas pipeline, how can we not help get kids through college or technical training? How hard are we going to squeeze this rock?"

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