Legislature(2003 - 2004)

2004-01-12 Senate Journal

Full Journal pdf

2004-01-12                     Senate Journal                      Page 1900
SB 256                                                                                            
SENATE BILL NO. 256 BY THE SENATE RULES COMMITTEE                                                   
BY REQUEST OF THE GOVERNOR, entitled:                                                               
          "An Act making appropriations for the operating and                                       
          loan program expenses of state government, for                                            
          certain programs, and to capitalize funds; making                                         
          appropriations under art. IX, sec. 17(c), Constitution                                    
          of the State of Alaska; and providing for an effective                                    
was read the first time and referred to the Finance Committee.                                      
Governor's transmittal letter dated January 12:                                                     
Dear President Therriault:                                                                          
The operating budget bill delivered today contains my proposal for the                              
2005 fiscal year.                                                                                   
The Fiscal Year 2005 operating budget marks the administration's                                    
second opportunity to demonstrate its commitment to fiscal discipline.                              
Our budget plan is straightforward: control spending, make                                          
government smaller and more effective, stabilize revenues over the                                  
short-term, and increase revenues over the long-term.                                               

2004-01-12                     Senate Journal                      Page 1901
The proposed budget is built on one principle: that we must take                                    
responsibility today for Alaska's tomorrow. Jobs, hope, and                                         
accountability are the reasons for the administration's work to align                               
state spending in a way that promotes economic development and jobs                                 
in Alaska and provides hope for the future to our younger generations.                              
The administration set two parameters within which it built the                                     
proposed Fiscal Year 2005 budget: spend less than this year and use                                 
no more than $400 million from the state's reserve account. This later                              
limit is important because over the last 13 years the state has spent                               
more than $5 billion from this reserve in order to prop up spending at a                            
level the state otherwise could not afford. When we took office the                                 
rate of withdrawals from the reserve account was projected to deplete                               
the reserve by February 2006.                                                                       
Today there is less than $2 billion in the reserve. It would be                                     
irresponsible to continue spending-as-usual and run the reserve                                     
account down to zero. Currently 84 percent of state revenue comes                                   
from oil and gas. The reserve was set up to serve as a buffer against                               
swings in oil prices. Without such a cushion, dramatic revenue drops                                
would mean dramatic mid-year reductions in state-supported services.                                
To prolong the life of the reserve, the administration is prudently using                           
it so it will last longer and serve as a "bridge" to the day when                                   
increased revenue is realized from natural resource development.                                    
Because of our fiscal discipline, the reserve account is extended to                                
January 2008. But it also is important that the reserve maintain a                                  
balance of at least $1 billion to serve as a cushion against oil price                              
fluctuations. Based on our spending and revenue proposals, the reserve                              
is expected to drop to $1 billion in July 2006.                                                     
Spending more than we can afford has created unrealistic expectations                               
of what government can and should provide and has created services                                  
that can't be supported over the long-term unless new revenues are                                  
found. This uncertainty has discouraged private business from making                                
serious investments in Alaska.                                                                      
Until new state revenues are generated, we ask all Alaskans to                                      
recognize that we must share the responsibilities-and make                                          
sacrifices-to put the state on course.                                                              

2004-01-12                     Senate Journal                      Page 1902
In developing the Fiscal Year 2005 proposed budget, every department                                
engaged in a process of self-examination in which it got down to the                                
     · Why does the department and program exist-what is its                                        
     · Does each program effectively contribute to achieving the                                    
          department's mission?                                                                     
     · What results are programs supposed to be getting-and are                                     
     · How efficient is the program in using public dollars to get                                  
          these results?                                                                            
This process, called "Missions and Measures," was initiated by the                                  
Legislature several years ago. My administration has built on the                                   
Legislature's work and expanded it into a management tool. We                                       
recognize that these frameworks not only communicate to Alaskans                                    
the "bang for the buck" that the state receives, but they also provide                              
program managers with feedback on a program's effectiveness, where                                  
changes may be needed to improve services, and just as importantly,                                 
which programs should be stopped because they are not effective. In                                 
addition to reporting these results to the Legislature as part of the                               
annual budget process, we also will report to Alaskans throughout the                               
year via the State of Alaska's home page on the World Wide Web.                                     
The spending proposed in Fiscal Year 2005 also reflects policy                                      
priorities and increases the state's investment in areas of traditional                             
responsibility-protecting the public's safety and education:                                        
     · Enforcing the Laws: Twenty Troopers, six criminal                                            
          prosecutors, and six public defenders are added to improve                                
          the safety of communities throughout the state;                                           
     · Protecting the Vulnerable: Twenty social workers and nine                                    
          civil attorneys, including attorneys for Child in Need of Aid,                            
          sexual and violent assault, juvenile delinquency, and human                               
          services cases, are added to increase the state's protection of                           
          those who are most vulnerable; and                                                        

2004-01-12                     Senate Journal                      Page 1903
     · K-12 foundation formula is funded at the higher per student                                  
          funding level approved by the Legislature last session. In                                
          addition, local school districts are reimbursed for school                                
          construction debt and the pupil transportation program is                                 
          funded at the level required by law.                                                      
The top priority for this administration is to develop Alaska's natural                             
resources in order to generate state revenue and create jobs to support                             
the quality of life that we want not only for those who are in Alaska                               
today, but also for those that will be here in the future. Economic                                 
growth is the best way to balance a budget. If the economy is growing                               
and expanding thanks to policies that encourage job creation and                                    
innovation, Alaskans will be able to better provide for their families                              
and communities. The administration has built a budget that                                         
encourages private investment.                                                                      
But the receipt of revenues from resource development takes time - it                               
took eight years for the state treasury to get revenues from Prudhoe                                
Bay. While we diligently work to develop these resources, we must                                   
have "bridge financing" to assist in getting us to when these new                                   
revenues will start to flow into the treasury. Our reserve account                                  
serves as this "bridge" and must be prudently used between now and                                  
Investment in our resource departments is necessary as we expand our                                
development efforts. The proposed budget adds key staff to the                                      
Department of Natural Resources Oil and Gas Division to aggressively                                
work on the gas line, an expedited Alaska Peninsula oil and gas lease                               
sale, opening of National Petroleum Reserve-Alaska, and further                                     
streamlining of our permit process.                                                                 
The Department of Environmental Conservation also is proposing to                                   
assume primacy for issuance of Clean Water Act permits from the                                     
federal government. Not only will this mean Alaskans are making                                     
decisions instead of outside bureaucrats, but we will be able to have                               
more responsive decision-making that advances resource development                                  
and protects the environment.                                                                       

2004-01-12                     Senate Journal                      Page 1904
In terms of spending level, the proposed operating budget is about the                              
same level as the current year. To maintain flat spending, a total of                               
$145 million in reductions had to be taken in order to cover                                        
unavoidable increases, which include:                                                               
     · Retirement system costs of an additional $29 plus another $5                                 
          million in unemployment insurance and workers'                                            
          compensation increases;                                                                   
     · Medicaid, foster care, and other formula-driven program                                      
          increases that went up $62 million due to higher medical care                             
          costs and increased caseloads; and                                                        
     · State debt service obligations that increased $42 million, of                                
          which $13 million is to reimburse school districts for locally                            
          approved school construction (bringing the program's total                                
          cost to $79 million), and another increase of $27 million to                              
          pay for school construction and transportation bonds approved                             
          by voters in 2002.                                                                        
In spite of reductions to cover these increases, the departments are                                
making every effort to maintain the current level of direct services.                               
This is not to say there will not be changes in how services are                                    
delivered to Alaskans-but no roads will close in winter nor will any                                
state parks close.                                                                                  
To manage reductions, departments were asked to identify how to                                     
achieve administrative-type savings. Human resource functions have                                  
been consolidated in the Department of Administration instead of                                    
being spread out across 15 departments. Not only will this result in a                              
savings of $640,000, there are other efficiencies including consistent                              
management administration of personnel law, labor contracts, and                                    
The Department of Corrections is consolidating administrative                                       
responsibilities to save over $760,000 while the Department of Health                               
and Social Services has reorganized and continues to reduce layers of                               
mid-management. The Department of Administration has led an                                         
enterprise-wide information technology (IT) review that resulted in                                 
creation of IT standards and coordination of technology within and                                  

2004-01-12                     Senate Journal                      Page 1905
between departments. The standards will translate into at least a five                              
percent savings in computer purchases. Improved IT coordination will                                
mean the results of technology investments are shared between                                       
programs and departments, thereby avoiding future costs. A new                                      
decision-making board is tasked with making IT investment decisions                                 
from an enterprise-perspective and a group of technology                                            
professionals has been tasked with offering enterprise-wide advice.                                 
In terms of the number of state employees, the proposed budget                                      
deletes 409 full-time positions, of which 69 percent (283) currently are                            
vacant. Elimination of vacant positions represents an effort to have the                            
budget better reflect the actual level of resources (both dollars and                               
staffing) necessary to deliver program services, which is important in a                            
cost/benefit analysis.                                                                              
In terms of revenues, the state is enjoying higher oil prices. But in                               
spite of this, the administration's overall proposed spending for Fiscal                            
Year 2005 requires an additional $75 million (this is above the $400                                
million from the state's reserve account.) To protect prudent use of the                            
state's reserve, the administration will be introducing several measures                            
to generate additional revenues.                                                                    
Sincerely yours,                                                                                    
Frank H. Murkowski