Walker says he's haunted by potential rate of using Alaska's savings; leaders review options

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JUNEAU, Alaska — Even with the budget cuts proposed by Gov. Bill Walker for next year, the state will still face the potential of having to draw on $3.3 billion from its savings, his budget director said Friday.

Pat Pitney said the state needs to reduce its budget responsibly and not rush into cuts that could be devastating.

"This is step one," Pitney told the House Finance Committee, saying the cuts proposed are less than a quarter of the 25 percent target that Walker asked departments to look at over a four-year period.

Alaska faces projected deficits of at least $3.5 billion this year and next amid the plunge in oil prices. It is seen as virtually impossible for cuts alone to fill those gaps.

In a State of the Budget speech Thursday night, Walker proposed cutting $550 million in unrestricted general spending next year. He called for looking at what the right size of government should be, with an eye toward future agency cuts and greater creativity in how the state delivers services. Walker suggested privatizing services, but he said Friday that he raised that idea more as an option to consider rather than having anything specific in mind.

The governor also said he has asked Revenue Commissioner Randall Hoffbeck to look at different types of investment possibilities, but Hoffbeck said there are just ideas being discussed right now.

Walker, who took office last month, told reporters Friday that he is uncomfortable with having the state live off its savings.

"I look at it from this standpoint: Every three or four days, we could have built a new school. That's what we're doing at $10 million a day that we draw down on our savings," he said, adding later: "That's the part that haunts me and caused me to take some pretty strong steps on the financial side, because I don't like drawing down our savings at $10 million a day. How many miles of roads could we have built?"

Walker referred to the state's budget situation as dire but has cautioned against panic.

Depending on spending and oil prices and production, the constitutional budget reserve fund could last until the early 2020s or be gone in the next couple years.

The state is pursuing a major liquefied natural gas project that is seen by many as the next best shot that oil-dependent Alaska has for significant new revenues. Pitney said different financing options for the gas project were under consideration.

Walker reiterated his commitment to the project Friday, saying that if anything, he would like to accelerate progress. He noted that his license plates say AKLNG.

House Finance Committee co-chair Steve Thompson, R-Fairbanks, has said other sources of revenue, including possibly taxes, should be part of the budget conversation now. Walker said he thinks Alaskans want the state to get its financial house in order first.

The administration has released a broad-strokes overview of the budget, which Pitney went over with the Senate and House Finance committees Friday. Greater detail is expected soon from the departments on specific areas of proposed cuts.

In analyzing agency cuts, the administration looked at factors including growth or reduction within agencies in recent years and the priority of the need for particular services, Pitney said.

The labor and commerce departments have among the largest proposed cuts in operating budgets from this year.

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