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Speech: 2014 State of Alaska Budget Proposal

Anchorage Chamber of Commerce

Governor Sean Parnell
December 14, 2012

Good afternoon. I want to raise for a moment the tragedy in Connecticut, and just let you all know, and the world know, that our thoughts and prayers and condolences go out to all those tragically impacted in Connecticut by the shootings there. I know our lieutenant governor went to that elementary school and has close connections to the community, and we just cannot even imagine the devastation that it has wreaked there.

I just want to express our sadness and our sense of loss with the people of that community and our nation as well.

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So a budget doesn’t come together without a lot of help from a lot of good people. There are many in this room serving you who I want to recognize. So if you are a member of our cabinet, would you please stand up? And would you all give them a hand as well, including members of my executive office team.

A budget begins coming together in July for the following July of the new fiscal year. That is spearheaded in large part by the Office of Management and Budget, which has a team working with each department. And that team has been working day and night, led by Karen Rehfeld and her team. Would you give them a hand as well for their diligent work?

I want to recognize Lt. Governor Treadwell who is here. Would you please rise, Mead?

Today, we release our 2014 State of Alaska budget proposal.

As we developed this budget, weighing the priorities, I had to reflect on one word that sums up our current position as a state. And that is: Solid.

It’s from Latin. “Solidus” -- a gold coin in Roman times. In today’s world, where many governments are saddled by debt, where our own government prints money backed by more paper, a gold coin is a very good currency indeed.

Alaska is solid: A Triple AAA bond rating; more than $16 billion in budget reserves, close to $43 billion in the Permanent Fund. We’re paying down what has been defined as unfunded liabilities; and we’ve been named the sixth best-run state in the nation. We are, in fact, a solid state. And solid we shall remain, because we are going to remain responsible and responsive.

Today, I propose a budget that is $1.1 billion dollars leaner than the current year. It holds the operating budget to 0.8 percent growth. It’s pretty hard to find a year in recent memory when that was the case.

As we prepared the budget, we had to face the facts: Oil production is down, and oil prices, too, have decreased. The production decline and rising cost of producing our oil profoundly impacts Alaska’s revenue.

The fall forecast shows a combined $1.6 billion – that’s with a B – drop in projected revenue over this fiscal year and next. So, what this means is: When the Legislature left last spring, the spring forecast of revenue projections and the new fall forecast show that, between this year and next, there is $1.6 billion less in revenue.

That means we will use the statutory budget reserves (our savings) in this fiscal year, to cover projected expenditures – by a little more than $400 million dollars. You’ll see, with the budget coming up, we don’t intend to do that: Less revenue means we will spend less in 2014.

Belt tightening is nothing new for us, though it does take time to slow this locomotive of state spending. Each year, we have scaled back. I’ve slowed budget increases our administration asks for each December 15, even against the pressure of formula program growth. And, I’ve scaled back legislative appropriations in the past, with record vetoes.

Here’s what the trend of Operating Budget growth looks like: (Slide). You can see our continual Operating Budget belt tightening. The blue line on the bottom is our administration’s proposed Operating Budgets across the last four times I have been before you, so across the last three years. The top red line represents the Legislature-approved and governor-approved budgets on the operating side. You can see the trend is distinctly downward.

Over this same time, we strengthened our savings accounts by saving surpluses. The Constitutional Budget Reserve has more than $11 billion dollars in it, and the Statutory Budget Reserve has more than $5 billion in it.

Setting aside some seed corn in times of surplus helps in coming leaner times.

With declining production and oil revenue, we also have to be smarter with the people’s money and gain efficiencies.

We are working to decrease overhead costs through more efficient and cost-effective procurement. We are systematically reducing the footprint and cost of state office space.

We propose a balanced budget. As I mentioned, our budget proposal spends less than last year: More than $1 billion less in state funds.

It totals $6.49 billion of state unrestricted general funds. And $12.8 billion total – including those federal funds and permanent funds.

With our budget proposal, even with this spending plan we’re putting forward, we project a surplus of more than $500 million – so we leave room for some community and legislative priorities.

To summarize, this balanced budget spends less and saves more than the current year’s budget.

As I’ve done in the past, I have had meetings with legislative leadership in both parties in the last 24 hours. I have asked them to set a spending limit with me. A self-imposed, reasonable limit is the key to successful and more sustainable spending. It imposes greater accountability. It allows us to emphasize our constitutional priorities: Resources, public safety, education, and transportation infrastructure.

In recent weeks, I’ve talked about key initiatives of our administration, initiatives reflected in the budget. I am going to start with public safety: The budget is strong on public safety— a core function of government.

We continue our commitment to end Alaska’s epidemic of domestic violence and sexual assault. And I’m so proud of the 120 communities in this state that stepped forward in 2012 to host “Choose Respect” rallies and marches, and raise awareness there.

Our “Choose Respect” Initiative will be reinforced in this budget with about $15 million dollars, including:

  • $3 million dollars for domestic violence and sexual assault prevention efforts and more than a half a million for shelters and services.
  • Nearly $2 million for child abuse prevention and treatment, and child advocacy centers.

We’re budgeting for 15 more troopers in the Railbelt -- five in the Mat-Su, five in Fairbanks, and five in the Kenai Peninsula, where our law enforcement hasn’t kept up with growing population.

We will continue providing law enforcement to communities that have none. Just like in prior years, we’ll add 15 village public safety officers into those communities that have no law enforcement right now.

We’re budgeting for a new trooper post in Hooper Bay, and a trooper to support the added village public safety officers that I mentioned.

Additionally, we’re beefing up prosecutions. We’re proposing three new prosecutors and legal support in Bethel, Fairbanks, and Juneau to pursue child sexual abuse cases, and three investigators to work these child abuse and sex trafficker cases.

In Alaska, crimes against children will be prosecuted to the greatest extent of the law. There’s no way around it; we cannot cut corners.

Chinook Salmon Research: Our fisheries not only sustain Alaskans nutritionally, they are a major economic engine for our people. The budget proposes $10 million dollars for the first part of a five-year, comprehensive Salmon Research Initiative. These salmon are a cornerstone of Alaska’s culture and livelihood, and we must work for the long-term return of kings through better data and fisheries management.

Every region of Alaska faces challenges with energy costs. Our plan will help with that, and move the ball down the field to our 50 percent renewable energy goal. The budget includes more than $531 million as part of our comprehensive energy strategy.

It’s a package with hydro-project dollars, low-cost financing for energy projects, weatherization, renewables, energy efficiency.

Let’s go through some of it:

We propose $95 million for year three of the Susitna-Watana Hydro Project. Susitna-Watana will provide dependable, long-term, clean energy to the Railbelt at lower, stable rates. Funding continues our field work for the Federal Energy Regulatory Commission license. Another Susitna-Watana milestone was met today when the study plan was filed with FERC.

We’re proposing $13.7 million to go to Bradley Lake Hydro, and upgrades there to the Bradley Lake power plant that will allow it to operate at optimum capacity. This will allow excess power to be supplied to Railbelt communities as far north as Fairbanks.

Our budget continues weatherization and heating assistance for low-income households, as well as fully funding the Power Cost Equalization Program. We also added funds for those powerfully effective home energy rebates.

We’re jump-starting a private sector project for a North Slope LNG plant. It has the potential to bring gas via truck to Fairbanks and perhaps by rail to Anchorage as a backstop to Cook Inlet supplies. The project also opens access to propane for road and river communities from Fairbanks. The target for first delivery is the latter part of 2015.

Moving to education, we aim high here. Our goal is a 90 percent graduation rate by 2020. We share that goal with many community groups and we’re all in this together to make this happen. Today’s rate is heading in the right direction, ticking up to nearly 70 percent.

As we increase academic achievement with the Alaska Performance Scholarships, we are adding access to better learning tools and resources. To provide better access to education opportunities, we are seriously upping Alaska’s game when it comes to distance delivery.

The Association of Alaska School Boards is working with districts on digital learning in several locations, with compelling results. We are going to partner with the association in a four-year Digital Learning Initiative to build on that good work.

The budget funds almost $6 million dollars for this statewide Digital Learning Initiative: The Alaska 1-to-1 Digital Technology Project, which, over four years, will provide digital devices to more than 32,000 students and 2,000 teachers per year.

We’ll make improvements to the Alaska Learning Network’s distance delivery to 53 districts, and provide dollars for online homework help and broadband support.

These 21st Century technologies, the distance learning, the online assessments – these all provide pathways to a better education.

And using a model succeeding in 33 states, we will engage students who are in danger of not graduating. We’ll do this through our “Jobs for Alaska’s Graduates” partnerships with the Department of Labor, United Way, school districts, and businesses like yours.

A few weeks back, I asked the State Board of Education to make sure teacher and principal evaluations were based, in part, on student learning. Most parents thought teachers were already evaluated on progress our kids were making in the classroom, but that’s not the case.

The Board of Education recently met and passed new regulations so that now, excellent teachers can be validated and recognized for their work. Struggling teachers will be encouraged and motivated to focus more closely on preparing their students; because our current teacher and administrator evaluation system recognizes and motivates no one.

Across the nation, educators have adopted student learning as part of the criteria for teacher evaluation, and we’ve now done it as well. Our students and teachers deserve it.

The budget fully funds and forward funds K-12 education and pupil transportation at more than $1.2 billion dollars, including $25 million, in addition, for expected energy cost increases.

Finally, there’s more than $68 million dollars for two new schools, one in Nightmute and one in Quinhagak. The Nightmute school is next in the schedule that was agreed to in the Kasayulie settlement of that lawsuit, along with 12 major maintenance projects around the state.

And now to infrastructure and “Roads to Resources.” Infrastructure forms a foundation for commerce and jobs. This budget includes $1 billion dollars for roads, airports, marine highway, municipal and village water and sanitation systems, harbors and deferred maintenance.

More specifically, “Roads to Resources” are direct paths to Alaskan opportunity. So there’s $8.5 million for the Ambler Mining District Road. We’re going to continue working on access to this mineral-rich area.

There’s $2 million more for the Department of Transportation to identify and develop corridors for timber and mining resources.

We propose a down payment into a project reserve fund for the Knik Arm Crossing. If we make several payments into the fund in coming years, that fund will be ready to leverage 30-year, tax-exempt financing, in the years ahead, when those permits are ready to go.

And, speaking of permitting, we’re doing better on the state side than the federal government. We’ve whittled our backlog by 34 percent in the last year and a half.

We’ll put more than $3 million dollars into the Unified Permitting Project. The project will continue to improve our state timelines for permits decision-making for mining, timber, public access, land sales and the like.

Nearly $3 million dollars will go toward our Strategic Minerals Assessment that is already underway. Alaska is rich in rare earth elements, something our country needs for national security as well as for consumer electronics.

We’ve requested $4 million for statewide digital mapping. With this budget request – and it’s hard to believe that we haven’t really mapped the Arctic – but with this budget request of $4 million, we should complete the mapping of our Arctic region.

There’s $15 million to purchase a building for the Geologic Materials Center. If you think about it, our state has a lot – many -- core samples that have been taken, that are part of our record. So in a particular unit that is being leased by DNR, for mining prospects, for example, the state has samples that a company can look at. Those samples are stored in container vans, hard to access. We propose putting those in one place, in one building, easily accessible to companies that will invest here, and to our public as well.

There’s $50 million in the budget for gasline development: Half of that for the Alaska Gasline Development Corporation and half for the AGIA reimbursement fund.

As you can tell, we put a heavy emphasis on resources, and accessing them. They’re the solid economic building blocks that Alaskans require, in good times and in bad.

Now, how about talking about the elephant in the room: Declining production. Greater state investment in infrastructure, the sustainability of our financial system, is going to take a very different revenue projection than what we face today. It’s going to take one where we turn around rather continue on this decline path.

This should be no surprise: We are in a time of oil production decline. You can be sure we are not done discussing how to boost production.

Two years ago in November, we moved 641,000 barrels a day. This November -- 582,000 a day. That does not bode well. We all know this. So we must, and we will together reverse the decline.

Getting a more fair and balanced system, a more simple system, a more productive fiscal system -- that remains a top priority.

To wind up our overview: With the global economy as it is, and with less production coming through the pipeline, we will continue reining in spending: $1.1 billion less in this proposed budget.

We begin from a position of strength. Alaska is solid. The budget is leaner, meeting our constitutional priorities. And, through our resources and the ingenuity of Alaskans, we have much more opportunity ahead.

I’m going to take some questions now, but before I do I want to wish you a Merry Christmas, Happy Holidays, and a happy new year as well. Thank you.

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