Walker pares capital budget to a minimum

ANCHORAGE — Gov. Bill Walker is reaching out to community and business leaders to help guide him through some tough times with the state budget. In a speech to the Anchorage Chamber of Commerce Dec. 15, Walker’s first address to a major business group since taking office Dec. 1, the governor promised to be honest and “blunt” about the state’s deteriorated fiscal position.

“We have to make adjustments. Alaskans have done this before and we can do it again. We can do it together, in collaboration, rather than making late-night decisions on the third floor,” he said, referring to the governor’s office in the state capitol building.

Walker appeared at the podium with new budget director Pat Pitney and acting Revenue Commissioner Marcia Davis.

The governor said he met with House and Senate leaders last week, with Davis showing details of the fiscal situation that were also displayed to Anchorage chamber members.

State budget documents for upcoming fiscal year 2016, which starts July 1, were also released Dec. 15 as required by law, but Walker said these were placeholder budget bills that had been developed by the outgoing administration of Gov. Sean Parnell.

The operating budget developed by Parnell was submitted by Walker but the capital budget was stripped of virtually all items except those that require state matching funds to federal programs.

Walker said he will submit his own budget to the Legislature, including a new capital budget, on Feb. 19, the required date for the administration’s amendments to the fiscal year 2016 budget bill.

“Any growth in the capital budget will be done with the utmost scrutiny and with an eye toward items that reduce future obligations,” said Pitney.

Walker has been dealt a tough hand of cards with oil prices that have plummeted in recent weeks, closing below $60 a barrel Dec. 15. State revenues from oil, which pay about 90 percent of the state budget, are expected to be cut in half this year.

“The price of oil doesn’t define us as Alaskans. We’ve been here before (in previous oil price plunges) and we’ll work our way through this responsibly. We’re not declaring a crisis — we’ll work our way out of this,” Walker said.

Fortunately, the state has ample cash reserves, about $12 billion in ready assets in two state reserve funds; that tally allows for a $3 billion transfer from reserves to state pension funds authorized by the Legislature in its 2014 session.

Walker pledged not to just whack the budget; it would be too disruptive for the state economy. 

“You can’t cut your way to prosperity,” he said.

There is no alternative to relying on reserves to cushion state budget deficits estimated at $3.5 billion this year and next, and continuing.

The needed restructuring of state finances also will present some opportunities. Walker didn’t elaborate on these, but later, in answering questions, the governor said that “public-private partnerships” in delivering public services was a major theme that developed in transition recommendations from a conference of citizens held in late November.

On the oil price outlook, Walker said state petroleum economists believe it will take some time for prices to nudge up.

“Circumstances overtook us. The world commodity markets were shaken when the Saudis decided not to cut production and to just wait it out until high-cost producers drop out,” he said.

“At $60 oil prices it is expected to take about a year to 18 months for the (excess) supply to drop. After that we believe the price will edge up.”