Interview: Gov.Parnell Explains Fiscal Plan

With less than two weeks of the session to go, the Alaska State Legislature is concentrating on the state’s budget and major pieces of legislation that would affect tax policy and energy projects. APRN’s Alexandra Gutierrez sat down with Gov. Sean Parnell to talk about his expectations for the final days.

We’re getting close to the end of the legislative session right now. What are the must-pass bills for you?

You know, at this point there really is only one constitutional priority, and that is to pass a budget. The legislature is working on that. I’ve had great success I think with legislative leadership in setting a spending limit, creating the framework for a 5-year fiscal plan and really just setting Alaskans up for a prosperous future in that way.

Legislators have made a number of changes to the oil tax bill since we last spoke. You said in the past that any oil tax bill needs to protect Alaskans on the low-end and needs to be simple. Do you still feel that this bill is your own?

GP: Let’s go back to those four guiding principles. Because the first was any bill that passes must be fair to Alaskans. Two, that it focuses on production. Three, that it be simple and restore balance in the system. And fourth, that it make us competitive for the long-haul or the long-term. I think that SB 21 as it has been changed and as it has come through the process still meets those guiding principles.

I certainly would like to see a few more changes made to it, perhaps at the lower-end where we could protect ourselves better against low oil prices. But taken as a whole, I do think the changes made do meet those four guiding principles. We still have a couple committees to get through in the Senate (Ed. note: The bill has passed the Senate, and is now moving through the House). We’ll continue working with legislators on that bill and work to create new production for Alaskans.

We’re hearing from oil companies that they don’t like the current system, that they think that the bill moving through the legislature would make Alaska more competitive, but that this legislation doesn’t go far enough. Why aren’t we hearing more enthusiasm from them?

Well I think you should ask them. I’m not in this for the oil companies. I’m in this for Alaskans, and our independent experts tell us that this bill now moves the needle on production, increases investment opportunities for companies, and — in doing — so creates more job opportunities and more revenue for Alaskans. So, I think you better put that question to the companies instead of asking me.

But just to follow up on that point, two years ago, BP came out saying that your earlier bill was a “necessary step in the right direction” and they actually had a decent amount of enthusiasm for a number of provisions. Now, we’re hearing from them that the legislation before them doesn’t go far enough to make the state’s future look different.

They’re negotiating. They always want more, and I want more for Alaskans. I want more production for Alaskans, and that’s what this is about.

Sources have told me that you have a scenario showing the consequences of not changing the oil tax structure and that it paints a pretty grim picture for the state treasury. What does that look like, and why aren’t you using that to make your case to the legislature for SB 21?

Well I think we have made the case for SB 21 both in terms of declining production — declines ranging from 3 to 6 percent per year– and using our reserves, which right now total about $16 billion, to manage through that.

The problem, though, is that if we stay where we are today with the current tax system, we are guaranteed decline. We are guaranteed that production will continue declining, that our savings accounts will continue declining, and we’ll leave nothing for our kids or grandkids. What I’m working to do is to change that picture, to create an Alaska comeback in oil and that is to create a future for our kids.

So, what I proposed is a five-year fiscal plan. We set spending limits across the next five years starting with this year, where we’ve cut about 15 percent from the existing year’s spending. We also manage draws on reserves, so that there are $700 million or less per year, assuming the current forecast stays true.

The bottom line is if we limit our appetite for government spending and if we manage our reserves well, our kids and will have a future and will have savings longer in reserve.

Do you have a projection that does show what things look like for the state and its treasury without this, and is there a reason that we’re not seeing a full fiscal plan for what happens if we don’t pass SB 21?

Part of the reason is because anything beyond five years gets more and more speculative, because we don’t know what the price of oil is going to be. I don’t have a plan in the back room or something that shows the state crashing, but we know from looking at the ten-year fiscal plan that we submit every year to the legislature that we begin draining reserves, and we’ve begun draining reserves this year.

So, you can’t just keep spending more than you’re taking in and say life is gonna be peachy. That’s head-in-the-sand thinking, and we’re taking the totally different approach which is, here’s the five-year fiscal plan, and here’s what we can do together to create opportunity for Alaskans.

On the subject of that five-year fiscal plan. I spoke with your budget director Karen Rehfeld last week and the idea basically is to cap the general fund spending at $6.8 billion for the next five years. Is that still what you all are considering?

It’s actually to ratchet it back a little bit from $6.8 billion by about $25 million increments. I don’t have that in front of me here, but effectively it would keep it in that $6.7 to $6.8 billion range. The other key component, though, is to limit draws on reserves, on our savings accounts to $700 million or less per year.

So, those are key elements of maintaining fiscal restraint and managing our way to new production.

Even with the current forecast — not changing anything and not considering what happens if SB 21 passes — we’re looking at a pretty serious deficit over the next five years. Even keeping at $6.8 billion and putting a $700 million limit on savings, it’s going be difficult to bridge that shortfall. How do you plan on shrinking the budget to meet that? And is $700 million your hard limit for drawing on savings?

I’ve already made those hard choices with the budget I proposed. I already proposed reducing spending by a billion dollars.

The House, to their credit, actually reduced the operating budget we submitted by a bit as well. The capital budget that has just been laid on the table by the Senate is also within the range of the spending limit that I’ve set. Legislators have worked well with me to meet the needs of their constituents, but also to look out for the long term of Alaska.

On that point, the Senate capital budget cuts about $100 million from your capital budget for this fiscal year (Ed. note: Since the taping of this interview, the Senate capital budget has been revised and now increases the governor’s budget proposal for FY2014 by $21 million). But it adds even more than that amount to the current fiscal year. Could you speak to that sort of accounting?

That’s a practice that’s happened every year. The difference this year is that this is the only year they’ll be able to do it under the five-year fiscal plan, because they will have used reserves up to $700 million — or close to that — in each of fiscal year 2013 or 2014.

They won’t have that flexibility in fiscal year 2014. They won’t have the ability to move the walnuts around like that next year. That’s part of why we have to build restraint into the system. Because there’s always more spending — more desire to spend — than there is money. We have worked well together to create a spending limit. I think we’re going to be able to maintain that, both through the legislative process as well as through my review process when this over.

So, I’m confident that we can restrain spending and get our way to new production and new revenues as well.

Last month the first lady spoke before the Senate Finance Committee asking that money for a State Trooper sex-trafficking investigation unit be restored to the budget. That money wasn’t. Were you disappointed by that?

I’m clearly disappointed in not being able to have specific funds dedicated to a sex-trafficking unit. I think that Alaskans are becoming more and more aware that our children are being trafficked and that unless we have investigators looking specifically for kids being trafficked and the traffickers, these kids will not self-report. They are enslaved by their traffickers and are not going to report harm to themselves.

At the same time, we are working in the conference committee process. The House budget numbers, for example, don’t have a limitation in the sense that the numbers for Department of Public Safety could be used for new troopers who are on the road system or for new troopers who are also part of a sex-trafficking unit.

So, I’m not getting everything I’ve asked for when it comes to public safety, and the officers,and troopers, and VPSOs. But we may have some flexibility there depending on what comes out of the conference committee.

Senate Finance Co-chair Pete Kelly has said that a team is working on a multi-year education funding package. Have you been involved in talks about that?

I have not personally. My legislative office has been made aware of those discussions. Certainly, we have been working through my legislative office to fund education. We did it last year with the extra $25 million that offset the heating costs and was the equivalent of a $100 per student BSA increase. This year I think we’ll see some more funding directed at schools, but again I think you better wait for the co-chairs to see which direction they’re headed.

So do you have a specific preference on what that package should look like?

Certainly I’m concerned about the conference committee numbers, on the one side where our early learning and digital learning components were taken away. At the same time, I’m fairly confident that the legislators will increase funding again for education.

The numbers are up that I proposed as well as both bodies have proposed. Again, I think the details need to await release by the co-chairs.

It sounds like they’re not looking to do this through any change of the formula, but were that to happen, would you support that?

Well again, we focused on results. We said if we are going to fund increases to education then we ought to get results for the kids. So, that’s why last year we knew what we were buying with the extra $25 million. We were buying the increase in heating costs. This year I expect that anything that comes out from legislators will have similar results-based component.

This week a bill advancing an in-state gas line project passed the House. Between that, the Fairbanks gas-trucking plan, the Susitna dam project, and the obligation to AGIA, we have a number of energy-relief projects that have us on the hook for over a billion dollars. How do you see all of these projects fitting together?

They actually all do fit together.

For example, the LNG trucking bill for the Interior would help to build a distribution system in Fairbanks for gas. That is tied to a large-diameter or small-diameter gasline project. When a gasline comes through the Interior of Alaska, it’s going to need a distribution system to go through. The distribution system will be there. In the meantime, until that gasline is built, Fairbanks and Interior Alaska will have a shot at cheaper energy and gas through trucking as a means to get that gas off the North Slope. So, certainly it all fits together in that sense.

Given the proposed spending cap we’re talking about, how do you keep on advancing these things? These are expensive projects, and we also have a large operating budget and capital projects that are important to legislators.

The five-year fiscal plan that I put forward had a caveat to it, and the caveat was that we can exceed the spending limit for a state-wide legacy project, one that benefits all of Alaska. A gasline certainly fits into that.

The key is that we not fritter away the state’s savings on little spending projects around the state year after year and keep increasing that. The key is that we manage our way through the five years coming forward, and then have some left over that we can make big investments with.

Additionally when you speak to, for instance, the cost of some of these projects, if you look at the Fairbanks Interior LNG project — the trucking project — we’re talking $50 million of general fund spending. The hundreds of millions of dollars are in the form of loans that would be paid back by the users of that gas. So, we’re not just talking about straight cash for every project. We’re working to think through these and make a smart project for all Alaskans.

Congressman Don Young recently used a word that was offensive to Latinos. How do you see that affecting the Republican party’s relationship with minority groups in the state?

I had a personal conversation with the Congressman. I let him know the comment was inappropriate. I told him that I appreciate that he made an apology for it. But, it just has no place in public discourse. Beyond that, to talk about campaigns, I won’t do in my public office. But I can tell you there’s no room for that kind of language in anybody’s conversation.

In an opinion issued last week, the Alaska Supreme Court ruled that the state must look at the cumulative impacts of oil and gas projects after lease sales. Environmental groups believe this could impact one of your bills that would allow DNR to approve development over whole geographic areas. How do you see this affecting your goal of streamlining the permitting process?

I don’t believe it really affects that bill. What it will affect are future regulations by DNR with respect to how they handle addressing cumulative impacts once leases are made and once projects are ongoing.

I used to work for the Division of Oil and Gas many years ago, and they spend a lot of time working through these kinds of issues with plans of development, monitoring the plans of development, and the question really is, how do they put that on paper in terms of what they do and the cumulative impacts that they’re required to take into account. I think that can be done by regulation.

Certainly the legislature’s free to take that up themselves as well through statue, but at this point, I look at it as a regulation project.

Is there anything else you would like to add?

The unemployment insurance tax that I am working to suspend in terms of the increases that are automatically made. Effectively, what happens is we have an unemployment insurance fund that makes payments out to unemployed workers. That fund has over $270 million in it. We have more dollars in it than we need to make these payments. And yet, under Alaska law, your paycheck and everybody else’s in this state automatically gets deducted for payroll tax — unemployment insurance contributions. And every year, your contribution goes up out of your paycheck, even when the state doesn’t need it. And I’ve introduce a bill to suspend those increases at times when that fund is solvent. And so, I’m really trying to give Alaskans a break in their paycheck. The state doesn’t need the money. Alaskans earned it. They ought to keep it.