Still Waters

An enlightening sky gradually crept from the eastern end of the Gastineau Channel, awakening Alaska’s capitol city to the splendor of a crystal clear Panhandle morning.  As the Stroller has noted before, every once in a while, this place just knocks your socks off.  Monday was one of those mornings.

Mayor Bruce’s stealth snow removal program had kicked in and experienced success.  During the past few days temperatures had risen and the snow laden skies rained, melting the four foot snow berms and icy sidewalks that challenged pedestrians.

Flickering lights framed the Channel’s still waters.  The nation’s and state’s flags atop the capitol building whipped in the occasional gust.

Below the flags, lights on the Capitol’s 5th floor blinked on.  Someone was already at work in Senate Finance.  On the House end of building, Finance Chairman Hawker’s silhouette crouched over his desk.  At the Baranof, the Capitol Cafe’s patronage increased with every bite of breakfast.

The lights in the Governor’s House, and Governor Sarah’s third floor capitol offices, were dark.

It was 7am on the day before the 26th Alaska Legislature gaveled into session.

As the dawning sky grew through multiple hues of crimson, and most federal, state and municipal workers celebrated Martin Luther King Day, Alaska’s legislative leaders were already toiling to craft the new state budget.

The Stroller joined the assembled Sages at the large round table in the Capitol Cafe, ordered a breakfast of reindeer sausage and eggs and joined in the spirited discussion about how this legislature and Governor Sarah would interface now that she has apparently come down with an incurable case of ‘Potomac Fever’.

The Sage’s prognosis wasn’t good.  The primary issue is this:

On December 15, Governor Sarah submitted her constitutionally mandated budget proposal to the legislature.  Characterizing it as “fiscally conservative” she called for general fund expenditures of about $5 billion.  Pretty much status quo to this year’s budget.  Oil revenues currently account for 89% of the state’s yearly revenue.  Governor Sarah’s budget is based on her Department of Revenue’s projection of a yearly average price for a barrel of oil of $74.41, a number necessary to support her expenditures.

Fantasy.

House Finance co-chair Rep, Mike Hawker, who’s portfolio includes crafting the state’s operating budget, immediately fired off a letter requesting Governor Sarah submit a budget based on more realistic revenue projections.  She declined and said it would be dealt with when the legislature convened.  In other words she told Rep. Hawker, and the legislature, you make the cuts and suffer the political consequences.

Here’s the rub: When Governor Sarah submitted her budget in December, the price of a barrel of oil had plunged from a summer high of $145 to hover around $35.  This week oil has recovered to a price in the low $40 range.  Internationally respected oil economists, the ones every major market or investment entity depend on, predict prices closer to $50.

Even at an average price of $50 a barrel Governor Palin’s proposed spending will result in a budget deficit of over $2 billion during the next fiscal year.  $2 BILLION.

At $40 a barrel we will be in a deficit of over $3 billion.  $3 BILLION.

The plunging price of oil has also resulted in a projected $1 billion short fall in this years budget that will have to be addressed in a supplemental budget appropriation at the beginning of this legislative session.

No matter how you spin it, that ain’t pocket change.

The Constitutional Budget Reserve (CBR), our savings account, has about $8 billion.  At our current rate of spending the savings cupboard will be bare in 3 to 5 years.  Then what?

Rep. Hawker, a CPA, is intent on crafting what he believes to be a realistic, sustainable budget that maintains essential state services while living within the realities of rapidly declining revenues.

His counterpart in the Senate, Sen. Lyman Hoffman, has stated he believes oil prices will recover and sees no immediate need to slash the budget.

Governor Sarah seems to be willing to stand back and let the two chairmen duke it out.  When the dust settles, she’ll take credit for being fiscally responsible and still be able to point the finger of blame at the legislature for the pain of any program cuts.

The Sages believe Governor Sarah has no intention of involving herself in the budget battle.  The last Governor who tried to herd the cats to severe budget cuts in the face of collapsed oil prices was Bill Sheffield.  He didn’t survive the next election.  Governor Sarah won’t risk her popularity, the success of ‘The Book‘ and Presidential ambitions on this fight.

Rep. Hawker is attempting to perform a political high wire act with no net.  He’s probably the right guy in the right spot at the right time and he is determined to pass a budget he believes to be responsible.  But remember, the British Parliament and Prime Minister Neville Chamberlain didn’t listen to Churchill when he warned the world about the growing threat of Hitler.

Will Governor Sarah and Rep. Hawker’s colleagues heed his warnings and follow his lead?

When push comes to shove, at the end of the session, when the final budget is being written, probably not.

There is $8 billion in the CBR.  In the end, the Sages believe this legislature will do what all other legislatures have done.  Put off the painful decisions, spend the savings, sustain the status quo and hope oil prices will spike upwards and once again bail us out.

On Thursday, Governor Sarah gave her State of the State speech to a joint session of the legislature.  She laid out her ‘vision’ for Alaska.  After a few moments, the Stroller and assembled Sages realized Governor Sarah wasn’t talking to us.  Her ‘vision’ was focused on the shores of the Potomac, not the Yukon.  Rep. Hawker will find no help there.

Sen. Hoffman is a passionate advocate for Bush Alaska, and knows when budget cuts finally come, the programs most important to Western Alaska will be the first on the chopping block.  No help there.

Will Rep. Hawker find some way to garner enough support to achieve his goals?  It will take all his political skills, all of them.

Sunday evening, under crisp clear skies, the state and federal flags hang limp above the Capitol.  Lights are on in the Capitol’s fifth floor Senate and House Finance offices.

Windows on the Capitol’s third floor, Governor Sarah’s offices, are dark, as are the windows at the Governor’s House.

The Capitol Cafe has closed for the day.

The waters on the surface of the Gastinau Channel are glass.  Undercurrents slowly tug at surface flotsam.

Winter storms are in the forecast.

Replenish your supply of lemons.

Stroller