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Governor Parnell's FY 12 Budget Message

Governor Sean Parnell

June 29, 2011

Alaskans are well aware of our federal government’s poor financial condition, Alaska’s declining oil production and revenues, as well as our state’s unfunded pension liability of $11 billion and escalating Medicaid costs. In light of these factors, I set a spending limit on state government in March 2011. This morning I signed budgets meeting the spending limit. Doing so required vetoes of $412 million.

With these vetoes, you could say Alaska’s budget is “at fightin’ weight.” In these uncertain times, being at fightin’ weight is good for our state. Living within our means will keep Alaska fit and strong.

Our administration’s budget review work included hearing from individuals, organizations, communities, and legislators about their priorities—both during the legislative process and in the review process. All of the input we’ve received on hundreds of projects has been considered. We have listened.

This budget invests in Alaskans’ future. It focuses on investments in energy, infrastructure and job creation.

So, let’s get down to details. The operating and capital budgets total $11.4 billion, including $6.9 billion in state general funds.

Operating budget growth was limited to 2.9 percent. Much of the operating budget growth is driven by statutory formulas. The budget fully funds legally mandated increases in K-12 education school funding, Medicaid formula costs, retirement system costs, including the state’s unfunded pension liability, debt service costs, and employee contracts.

Interactive Budget Map
Budget Information by Community

The capital budget which the legislature passed at $3.2 billion now totals $2.8 billion. This includes $1.6 billion in state general funds.

  • Infrastructure projects and energy projects comprise over $2 billion. The energy component alone (which is our investment focus this year) totals $1 billion of that number.
  • Capital projects in support of education total nearly $300 million.
  • And public safety projects total more than $265 million.

Clearly, our focus this year is on energy—providing opportunity for more affordable and abundant energy for Alaskans. I submitted a comprehensive energy package in December for legislative consideration and the legislature beefed it up from there.


We’ve included over $1 billion for energy projects, including:

  • Hydroelectric generation and transmission
    • Susitna hydro project is funded at $65.7 million
    • Whitman Lake, Ketchikan at $8 million
    • Blue Lake, Sitka at $28.5 million
    • and the hydro project in Southwest Alaska at $10 million, to name a few
  • Renewable energy grants at $36.6 million
  • Weatherization ($64 million) and home energy rebates ($37.5 million) totaling $101.5 million
  • Power Cost Equalization - $400 million into PCE fund with $34.3 annual cost
  • and $12.5 million for Geothermal Mt. Spurr.

Roads to Resources

Roads to Resources funding will provide long-term jobs for Alaskans and access to lands.

  • We’re including $8 million to finish the environmental work for a 90-mile transportation and pipeline corridor from the Dalton Highway to Umiat—including the natural gas fields at Gubik.
  • Another Roads to Resources goal is to access the Ambler Mining District’s rich deposits. This budget includes $1.25 million to complete environmental permitting and early public processes on the project.
  • The budget includes $43 million for improvements to the Dalton Highway, one of two lifelines to assure domestic energy production and jobs continue on the North Slope.

Natural Gas for Alaskans and Markets Beyond

Bringing natural gas to Alaskans and markets beyond remains a high priority for our state. Recent reports suggest that shale gas plays in the Lower 48 are not as productive as once thought. Thus, more opportunity exists for Alaska gas there, as well as here at home, where many of our residents suffer under high energy costs. For these reasons, we move forward on all fronts to commercialize Alaska’s gas.

This budget puts dollars toward the Alaska Natural Gas Pipeline project and to the in-state gasline project team.

Rare Earth Elements

Besides making progress on roads to resources and natural gas development, I see a day when we can unlock a new set of resources for our nation. Alaska can become America’s source for rare earth elements. The budget includes funds to perform a strategic assessment of these promising deposits.

More Infrastructure, More Opportunities

The capital budget also contains:

  • For transportation, including highway and aviation projects – $1.24 billion
  • For water and sewer projects – Over $87 million.
  • For K-12 education and university projects – Nearly $298 million.
  • For deferred maintenance projects – More than $114 million.
  • Port of Anchorage and Point MacKenzie Rail Extension projects at $30 million each.
  • And $44 million for the Tanana River Bridge.

Even though I exercised my line-item veto authority on $400.3 million in proposed Capital spending, we clearly have a healthy capital budget. Still, saving more is imperative given these uncertain times.

Accordingly, we are adding $3.0 billion to the state’s budget reserves. This includes:

  • Saving $1.1 billion into the Statutory Budget Reserve
  • Saving $1.0 billion to forward fund K-12 education
  • Saving $400 million for the Alaska Performance Scholarships
  • Saving $200 million for in-state gas line development
  • Saving $400 million for Power Cost Equalization
  • Saving $60 million in marine highway vessel replacement funds.

These specific deposits, along with spending reductions, will leave the state a balance of over $15 billion in various savings accounts.

The uncertainty of our nation’s fiscal condition, Alaska’s declining oil production and revenue, and our state’s rising, unfunded pension debt payments and other fiscal obligations have compelled me to exercise the line-item veto power granted in Alaska’s constitution. I believe that Alaska’s budget reserves, if managed well, can be Alaska’s shock absorber through difficult times, and these savings can be used to leverage long-term economic opportunities for Alaskans. In closing, this budget provides significant opportunities for Alaskans today, while better securing our future.

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