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Alaska state budget (2008-2009)

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State Information


Alaska faced a $1.65 billion budget shortfall for fiscal year 2009 and a similar shortfall for fiscal year 2010, $1.25 billion, due to drops in oil revenue.[1][2] In early January 2009 Senate President Gary Stevens stated that the state was facing a budget deficit as large as $2 to $3 billion for FY 2010.[3] The state budget spending-versus-revenue gap was largely due to a decline in the price of oil. In December 2008 state officials anticipated a $388.7 million surplus for FY 2010, but in just two months revenues dropped.[2] In response to the state budget crisis Gov. Sarah Palin proposed that the state draw on reserves. A total of $1.36 billion and approximately $1.2 billion were estimated to be withdrawn for FY 2009 and FY 2010 respectively. “Responsible reductions and prudent use of reserve funds that we had set aside for tougher times will help us weather the storm,” said Palin. The Constitutional Budget Reserve totaled $7 billion.[4]

Impact of budget woes

See also: State budget issues, 2009-2010
  • According to Labor Department statistics, the state's January 2009 unemployment rate increased to 7.9 percent, 1.5 percent above January 2008's rate. Despite the unemployment increase, the department reported that the number of payroll jobs in January was above the prior year's count by 5,200 jobs.[5]
  • The Juneau School Board reported that the student-to-teacher ratio would be increasing for the 2009-2010 school year due to budget cuts. In the board's approved $70.8 million budget, 13 full-time teaching positions were eliminated, creating a savings of approximately $1.1 million. The ratio for kindergarten through second grade remained at a pupil-teacher ratio of 21:1. However, the rate changed for grades 3 through 12. Rate changes varied: third through fifth graders increased from 24:1 to 25:1; six through eighth grades increasde from 20.5:1 to 21.5:1; and ninth to twelfth grade classes increased from 25.25:1 to 26.25:1.[6]
  • On February 12,2009 the acting mayor of Anchorage announced an additional $3 million cut to the city in light of a $17 million budget shortfall. The city fire department in turn did not fill its 14 vacant positions.[7]
  • The Matanuska-Susitna Borough School District anticipated a $9 million shortfall for FY 2010 with no upgrades and only taking into the account the maintenance of then-current services. The total budget was estimated at $200 million.[8]
  • In response to the budget shortfall Gov. Palin implemented a hiring freeze in January 2009. Students, college and graduate interns, seasonal positions, positions essential for the safety of Alaska and temporary substitute positions were some of the positions exempt from the hiring freeze. Gov. Palin also instituted a purchasing restriction.[9][10]

Budget background

See also: Alaska state budget

Alaska's fiscal year runs from July 1 to June 30 of the following year, with year-end accruals made through August. Every state agency submits requests and statistics on revenue and spending to the governor; the governor in turn must submit a recommended budget to the legislature by December 15. The legislature convenes on the third Tuesday in January. Once the House and Senate approve and make any necessary changes to the budget bill, the bill is passed back to the governor. If an appropriation bill is transmitted to the governor after session, the governor has 20 days to review the bill and exercise line item veto power.[11]

  • FY 2009's budget included $5 billion in spending from the state’s general funds, a 34 percent increase over FY 2008's budget.[12]

Budget figures

The following table provides a history of Alaska' expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $8.5[13] $27.0[13]
2001 $9.0[13] $26.6[13]
2002 $9.4[13] $29.2[13]
2003 $9.7[13] $31.2[13]
2004 $10.0[13] $35.1[13]
2005 $10.0[13] $39.3[13]
2006 $10.8[13] $43.1[13]
2007 $11.6[13] $44.5[13]
2008 $12.5[13] $46.0[13]
2009 $13.4*[13] $47.5*[13]
  • NOTE: The figures for FY 2009 had not yet been finalized when this data was compiled.

Ideas about why the crisis occurred

  • Oil prices had risen every year for the last seven years, topping out at an average of more than $91 a barrel in 2009. Prices in 2008 peaked at above $140, but closed at $32.26 on January 23, 2009. According to the Department of Revenue, oil production levels for FY 2009 were relatively stable, but fell approximately 3,000 barrels a day. State officials reported that unrestricted revenue for FY 2009 was projected at $5.5 billion, or $1.2 billion less than projected in the fall 2008 forecast. In total, oil revenues provided 87 percent of the anticipated unrestricted revenue.[14]
  • Alaskan oil companies saw a decline in profits in 2008. For example, in 2008 BP Exploration (Alaska) Inc. earned a total of $1.95 billion in profits, down 21 percent from 2007. Additionally, BP paid $3.3 billion in taxes in Alaska last year. Seventy-one percent of the total taxes paid in 2008 came in the form of production taxes, compared to $1 billion in 2007 and $665 million in 2006. Conoco Phillips, the state's largest oil producer, reported similar statistics. BP Alaska averaged 197,000 barrels per day in 2008, a 6 percent decline from 2007 and down 12 percent from 2006.[15]

Proposed actions

Governor Sarah Palin

In light of the state's deficit, Palin reduced spending by $268.6 million and planned to draw $1.36 billion from the state's $7 billion reserve. Palin also proposed roughly $17 million in reductions to departments and implemented a salary freeze for state employees in January 2009. However, Gov. Palin emphasized that massive cuts to the state government and services could do more harm than good. "We were really trying very hard to minimize the impact on public services, those types of things. Because I think that with the current economic conditions there's sensitivity. If there were some massive reductions, or massive layoffs, that would have an unintended consequence of putting Alaska further into a recession," she said.[1] However, in anticipation of a looming $1.25 billion deficit due to a sudden drop in oil revenue, Gov. Palin again proposed withdrawing funds from the state's reserves. The governor's FY 2010 budget recommendation included an operating budget reduced by $382.3 million in general funds.[2]

Republicans

In reaction to the state's widening then-current and future budget deficits, Sen. Bert Stedman said that it was important not to overreact. "We can't overreact and slash and burn the operating account or we'll push the state into a recession," he said.[1] However, Rep. Mike Hawker said that in light of the budget bill that passed the House in March 2009, state legislators needed to continue looking for ways to respond to the state's decreasing oil revenue. "This is a responsible budget but not a sustainable budget," said Hawker, referring to oil production's steady decline. "It meets the needs of Alaska but also needs to be the beginning of a new discussion about what we expect from government and how we are going to pay for it."[16]

Democrats

House Minority Leader Beth Kerttula said that pulling out cash assets could leave the fund vulnerable. "If we have to liquidate we could be losing another billion bucks," Kerttula said. Of the state's FY 2010 budget as a whole, Rep. Harry Crawford said, "There are some new initiatives, and we've cut back some, but basically we're at the same place we were at the beginning of the year."[16]

Economic stimulus package


Gov. Sarah Palin speaks about federal stimulus funds

Alaska was expected to receive approximately $930.7 million from the $787 billion economic stimulus package.[17] According to White House officials, the stimulus bill was estimated to create or save 8,000 jobs.[18] However, on March 19, 2009 Gov. Sarah Palin announced that she would accept only about half of the federal funds. The governor noted that in order for the state to accept energy funds, the state would have to adopt uniform building codes, which she said would require policing. This, Palin added, was not sensible for the state. Gov. Sarah Palin said:

"Simply expanding state government under this federal stimulus package creates an unrealistic expectation that the state will continue these programs when the federal funds are no longer available.”[17]

However, on March 24, 2009 Alaska legislators said they were likely to accept at least most of the federal economic stimulus money that Palin was turning away. Senate Majority Leader Johnny Ellis said that he would be surprised if the state gave up "much or any of the federal money."[19]

According to preliminary reports, Alaska was expected to receive:

  • $3.5 million in stimulus funding for energy improvements at Fort Wainwright[20]
  • $3 million for housing and urban development[21]
  • $115 million to balance the state education fund[22]
  • $12.9 million for special education[23]

Budget transparency

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the U.S. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, was administered by state governments.[24]
  • It was estimated that Alaska received approximately $930.7 million from the economic stimulus package.[17]

Legislation

At the time of this article's writing, Alaskan lawmakers had not yet passed legislation to place spending transparency online. However, in the first week of February 2008, the Division of Finance created a new website, the Alaska Checkbook Online, that discloses some aspects of Alaska state government's spending practices on an ongoing basis. The site is similar to having a checkbook register online.[25]

Government tools

Alaska Checkbook Register Online features:

  • Payments to vendors and grantees who received at least one payment of $1,000 or more through the end of June 2008 are included (individual payments of less than $1,000 are not included).
  • The information provided includes the name and location of the vendor or grantee, the purpose of the payment, and the state agency or department that requested the payment.
  • Twenty-six different types of payments are excluded for confidentiality reasons.[26]

The following table is helpful in evaluating the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary
Alaska: Checkbook Online N
600px-Red x.png
Y
600px-Yes check.png
Y
600px-Yes check.png
Y
600px-Yes check.png
N
600px-Red x.png
N
600px-Red x.png
  • Community funding databases:

Alaskans can access two online databases that allow users to search state grants, revenue sharing, and capital project funding given to Alaskan cities and towns. The Community Funding Database provides information on the year, grant type, recipient, project description and status, award amount, disbursement information and staff contact for each entry.[27]

The Capital Projects Database contains descriptions, funding levels and statuses for over 16,000 capital projects in Alaska communities.[28]

Support for creation of the database

Alaska's Checkbook Online was placed made available thanks to the support of Governor Palin.[29]

The original sponsor of the legislation authorizing the online spending database was Sen. Bill Wielechowski (D - Anchorage).[30]

In early 2008, Sens. Wielechowski and Ellis proposed SB 201, known as the Alaska Open Government Act, that would mandate additional information be added to the Alaska Checkbook Online database.[31][32]

Alaska Senate Bill 201 was supported by Americans for Tax Reform and the National Taxpayers Union.[33][34]

Accounting

The Alaska State Constitution says in Section 9.14 that the State Legislature is to appoint an auditor at its pleasure, and that the auditor is responsible for performing post-audits, which are to be reported to the Legislature and Governor of Alaska.[35]

The Legislative Budget and Audit Committee is responsible for overseeing audits. The Committee is composed of five members from the Senate and five members from the House of Representatives.[36]

Under the Legislative Budget and Audit Committee, there is the Legislative Audit Agency. This agency performs audits that are reviewed by the Legislative Budget and Audit Committee. Audits are performed by this agency in order to ensure that Alaska state administrators comply with financial regulations and adequately manage their state programs. In addition, the agency performs any special audits that are requested by legislator who sit on the Legislative and Budget and Audit Committee.[37]

The Legislative Audit Agency is headed by the Legislative Auditor.[38]

See also

External links

Additional reading

References

  1. 1.0 1.1 1.2 Anchorage Daily News,"Alaska budget hole is $1.65 billion," February 4,2009
  2. 2.0 2.1 2.2 Reuters,"Alaska sees $1.25 billion budget gap on oil price drop," February 19,2009
  3. Juneau Empire, "Declining oil prices leave state facing shortfall," January 21, 2009
  4. Gov. Sarah Palin,"Palin Reduces FY2010 Spending Plan," February 18,2009
  5. Associated Press,"Alaska's unemployment rate increases in January," March 6,2009
  6. Juneau Empire,"Pupil-to-teacher ratio to increase next school year," March 18,2009
  7. ABC,"More Anchorage budget cuts," February 13,2009
  8. Anchorage Daily News,"Mat-Su schools face budget shortfall," March 3,2009
  9. Gov. Sarah Palin,"Hiring freeze," January 23,2009
  10. Gov. Sarah Palin,"Hiring freeze update," February 6,2009
  11. State of Alaska,"Life cycle of a budget," accessed March 25,2009
  12. Fairbanks Daily News-Miner,"A closer look at Palin’s budget cut claims," September 6,2008
  13. 13.00 13.01 13.02 13.03 13.04 13.05 13.06 13.07 13.08 13.09 13.10 13.11 13.12 13.13 13.14 13.15 13.16 13.17 13.18 13.19 US Government Spending,"Alaska State and Local spending," accessed March 25,2009
  14. Department of Revenue,"Revenue Releases FY09 Forecast Update," February 3,2009
  15. Anchorage Daily News,"BP profits decline in '08," March 18,2009
  16. 16.0 16.1 AssociatedPress,"Operating budget passes Alaska House," March 15,2009
  17. 17.0 17.1 17.2 Gov. Sarah Palin,"Governor Accepts Half of Stimulus Funds," March 19,2009
  18. American Recovery and Reinvestment Act,"Estimated job effect," accessed March 25,2009
  19. Anchorage Daily News,"Legislators want to accept stimulus funds," March 25,2009
  20. KTUU,"Alaska's military installations to benefit from stimulus," March 21,2009
  21. KTVA,"Alaskan housing programs to receive nearly $3 million," March 25,2009
  22. Alaska Politics Blog,"Alaska school officials: Stimulus 101," March 16,2009
  23. Associated Press,"Alaska Democrats pile on Palin over stimulus money," March 21,2009
  24. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  25. National Public Radio, http://www.npr.org/templates/story/story.php?storyId=18764744, February 7, 2008
  26. Payment systems excluded based on confidentiality analysis
  27. Grants: Community Funding Database
  28. Capital Funding: Capital Projects Database
  29. Alaska Checkbook Online, "Overview"
  30. SitNews, "New Legislation Would Open The State's Checkbook to Public Scrutiny," January 7, 2008
  31. Text of SB 201
  32. Americans for Tax Reform, "Letter endorsing SB 201," February 20, 2008
  33. Americans for Tax Reform, "Letter support SB 201," February 20, 2008
  34. National Taxpayers Union, "An Open Letter to the Alaska Senate: Taxpayers Support Online Spending Transparency (SB 201)," March 7, 2008
  35. Alaska State Constitution, Section9.14.
  36. Legislative Budget and Audit Committee, 2009-2010 Membership
  37. Alaska Division of Legislative Audit, Organization and Function
  38. Alaska Division of Legislative Audit, Organizational Chart