Capital budget vetoes likely on the way

Posted: Monday, May 23, 2011

The Legislature's $3.1 billion state capital budget is headed for some reductions through vetoes by Gov. Sean Parnell, but it will still help steady the state's economy.

But even if Parnell trims spending to the current year level of about $2.8 billion, a level he said he would support, it's enough to keep the state's construction industry on an even keel, says John MacKinnon, president of the Associated General Contractors' Alaska chapter.

Approval of the state capital budget was the Legislature's last major action when Gov. Sean Parnell called the special session April 18. The session came to a close May 14. The capital budget was at the core of a dispute between the state Senate, the governor and the House when the regular session ended April 17.

Lawmakers were at an impasse on the capital and operating budgets during the regular session, so Parnell called them into special session the next day to finish the budget work.

The Legislature passed an operating budget May 6. The stalemate on the capital budget continued for more than three weeks, however, until exhausted legislators finally put a deal together. In the end the House added to the capital budget the Senate passed and didn't disturb the Senate's projects.

Senate Finance co-chair Sen. Bert Stedman, R-Sitka, said the stimulus effect of the state capital budget has helped keep Alaska's economy steady through the sharp national recession that hit the Lower 48 in the last two years.

"Infrastructure investments (through the capital budget) create private sector jobs and have a tremendous impact on Alaska's local economies. We worked hard to ensure all regions of the state move forward as we improve the quality of life in our state," Stedman said.

The state's construction industry welcomes the work, MacKinnon said.

"There's plenty of capacity in our industry to absorb this without overheating things," MacKinnon said.

State and local agencies are getting a lot of bids on projects from last year's capital budget now going on the street, and that's a sign things are still pretty competitive in the building industry, MacKinnon said.

"That's particularly the case in building construction, or buildings, because the private sector market for commercial building has pretty well dried up," he said.

Hefty capital budgets in recent years have helped firm up the soft structural construction market. Civil construction, mostly roads, airports and bridges, has been largely steady thanks to federal funding and a healthy dose of federal stimulus money last year.

MacKinnon said lawmakers' approval of major appropriations for deferred maintenance on schools, university buildings and state-owned buildings is also a big plus for the industry. Major maintenance provides a lot of work for smaller contractors and suppliers. MacKinnon hasn't added up the total in deferred maintenance spending in the capital budget but he believed that it exceeded the governor's request of $100 million.

The capital budget is where the Legislature appropriates funds for one-time projects, typically construction, but it is not unusual for operations programs to be funded in the capital budget. Also, appropriation of state funds into savings accounts are often done through the capital budget as well as the operating budget.

This year the Legislature also appropriated $2 billion of an expected state revenue surplus into the state Statutory Budget Reserve in both the capital and operating budgets as well as $400 million in the Power Cost Equalization Fund, an endowment that supports rural residential electricity subsidies. The Legislature also provided $200 million to pay down state debt.

Assuming the governor allows the special appropriations to savings to stand, which is considered likely, the state will have about $13 billion in savings between the Statutory Budget Reserve and the larger Constitutional Budget Reserve, which now holds more than $10 billion.

In addition, there is the Alaska Permanent Fund with a market value that exceeds $40 billion.

The main business of the capital budget is financing construction, however.

Money to build

Of this year's $3.183 billion, $1.146 billion were federal dollars that are administered by the state and spent mostly for surface transportation projects like highways and airports. The remaining $2.04 billion were state funds that were mostly general fund revenues, about 90 percent from oil taxes and royalties.

Of the $2 billion in state-funded project, $200.5 million were spent on school projects, both new construction and deferred maintenance, and $486.4 million were spent on various energy-related projects. About $62 million were spent on harbor and tourism-related enhancements funded by a state tax on cruise ship passengers.

These are general fund revenues but the Legislature takes care to designate the money to projects that benefit cruise ship passengers in some way, so as to avoid potential federal constitutional issues over a potential tax on interstate commerce.

One non-construction appropriation of interest is $12 million for tourism promotion next year. This will be used to fund Alaska visitor advertising and marketing by the Alaska Tourism Marketing Association, a visitor industry trade group under contract to the state to administer the state's generic tourism programs.

There is also a smaller appropriation in the operating budget. ATIA members provide a match to the public money, but the bulk of it is from the state.

Parnell also achieved one of his key legislative goals through the capital budget, a $400 million appropriation as an endowment for the new state "performance" scholarship program, which provides aid to college students based on academic achievement. The Legislature matched this with a smaller fund for "needs-based" scholarships, for students in financial need.

A similar capital budget appropriation was made in last year's capital budget, which funded a stepped-up marketing effort largely credited for the increase in independent travelers last year and expected this year.

A major part of the capital budget is the $486.4 million energy appropriations package, of which $96.5 million is for upgrades of electrical transmission lines in Southcentral Alaska requested by electric utilities in the region.

There is also $36.62 million for renewable energy grants, mostly for small wind, hydro and biomass projects in rural communities; $65.7 million in funding for the Alaska Energy Authority to begin work on preliminary licensing for a 300-megawatt hydro dam on the Susitna River north of Anchorage, funding for an expansion of Sitka's Blur Lake hydro project, and $20 million to help fund advanced geothermal exploration.

In another part of the appropriations bill the Legislature also provided $8 million for preliminary permitting for a 90-mile access road to connect a small oil field planned for development in Umiat, on the southern North Slope, with an existing road and the Trans-Alaska Pipeline System.

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