Parnell proposes ‘belt-tightening’ state budget

With oil revenues expected to decline, Gov. Sean Parnell wants to cut the state’s budget by $1 billion next year and then use another billion in savings to balance the rest.

Governor Sean Parnell discusses his proposed FY15 budget. (Photo by Josh Edge/APRN)

Governor Sean Parnell discusses his proposed FY15 budget. (Photo by Josh Edge/APRN)

If Gov. Sean Parnell had one big talking point while unveiling his budget proposal, this was it:

“Lower revenue means we tighten our belts now.”

“We need to tighten our belts on expenses.”

“Nobody’s denying that we are tightening our belts.”

At an Anchorage Chamber of Commerce luncheon and then again with reporters, Parnell emphasized the need to pull back on state spending. At $12.4 billion, his budget for the 2015 fiscal year is smaller than the $13.4 billion one currently in place.

Appropriations from the state’s unrestricted general fund — the pot of money that lawmakers are free to appropriate without any strings attached — amount to $5.6 billion. The next biggest funding source is the federal government, which is contributing $3.1 billion to Alaska’s government.

Parnell’s plan keeps agency operations mostly flat at $7.6 billion, and Parnell announced that 150 state jobs were being cut to save money.

The proposal shrinks the capital budget by a third, with the state substantially cutting back its contribution. Of the $1.7 billion allocated for infrastructure, just $430 million is coming from Alaska’s unrestricted general fund. The federal government is footing most of the difference.

There’s also less state money for mega-projects. This past year, the Susitna-Watana Hydro Project got nearly $100 million from the state. Now, Parnell’s asking for $10 million. The funding request to legislators for the Knik Arm Bridge project has also been halved to $5 million, while the federal government is lined up to kick in $50 million toward KABATA.

Even with the cuts, the state faces a billion-dollar deficit under the proposal. That money would have to come out of the state’s $17 billion rainy day fund. Under the budget that was enacted for this fiscal year, that savings account is already expected to take a $2 billion hit.

The state is expecting a savings withdrawal of $3 billion over the next two fiscal years.

The state is expecting a savings withdrawal of $3 billion over the next two fiscal years. (APRN)

The biggest item in the budget isn’t a project at all. It’s a $3 billion transfer from the state’s budget reserves that would be used to help pay off the state’s unfunded pension liabilities. Parnell says it’s a bipartisan goal which should keep Alaska’s future debt under control.

“It would be akin to Congress and the President making the Social Security sustainable over time,” Parnell told reporters on Thursday afternoon. “From a state standpoint, this is about as significant as it gets to address the single largest cost driver of our operating budget.”

There is a chance that Parnell’s budget proposal could grow after the Legislature gets a chance to review the document. Parnell expects them to put in some of their own capital projects and have different priorities when it comes to state agencies. He says he wants them to show restraint, but he hasn’t named a hard number for a spending cap.

“I wanted to leave room for legislators,” said Parnell. “I wanted to lower the band of spending again, given lower revenues. Every department was asked to produce savings in line with that and with the proportion of general fund dollars had in their budget.”

Legislators will get their crack at the document when they reconvene in Juneau on January 21.

This story has been updated to include information on a federal appropriation for the Knik Arm Bridge project. A previous version specified that the funding request was halved, without specifying that the reduction was in proposed general fund spending.


Recent headlines