Alaska's economy is strong but the state must invest in energy, education and other projects to help keep it that way, Gov. Sean Parnell said Wednesday night.
In his State of the State address, delivered before a joint session of the Legislature and a statewide TV audience, Parnell outlined a vision for doing that: cutting taxes to entice oil companies to boost now-flagging production; pursuing more renewable energy projects, including a massive hydroelectric project that could help meet electricity demands along the Railbelt; and pushing ahead with a multimillion-dollar scholarship program that he considers critical to transforming Alaska's education system.
He said the state was built on the foundation of its people and resources — and "we must continue to invest in both."
While pieces of the agenda he laid out Wednesday night build on work started last year and were generally greeted warmly by lawmakers — including his call to further crack down on domestic violence and sexual assault — he faces an uphill battle on several others, notably on the oil tax issue.
House Democrats and members of the Senate's bipartisan ruling bloc are skeptical of the need for a tax change and wonder, as House Democratic leader Beth Kerttula does, if it's more than a give-away to industry. A state Revenue Department report released Tuesday found that multiple changes to the tax in recent years rendered it difficult to tell whether the tax has helped or hindered industry. But Parnell has maintained that lower taxes — as well as hundreds of millions of dollars in potential tax credits — are necessary to boost declining oil production and create jobs.
In outlining proposed sweeping changes to the tax this week, Parnell said the state has more than $11 billion in savings, and that his intent is to grow the economy, not focus on growing government reserves. An analysis by his office shows the tax-rate change alone would cost the state treasury more than $5.2 billion over five fiscal years.
He says this as he calls on lawmakers to exercise fiscal restraint in other areas and limit the growth of government and capital spending.
Some senators, like finance committee co-chairman Bert Stedman, favor a savings component, mindful that oil prices could tank and quickly leave the state in a precarious spot; oil, after all, is king, responsible for lining the state coffers and helping to provide the flush financial cushion Alaska now enjoys.
But Stedman and others also see value in a robust capital budget.
"We have gone around and around with the executive branch over the last three or four years over the capital expenditures, when we tried to push large capital budgets out into the state to keep the state from sliding into a recession like the rest of the country," he told reporters Wednesday night. "That policy looks like it was successful, and we're coming out of that recessionary environment and we're stronger than ever and some of us would like to see the state even get in a stronger position financially."
Parnell vetoed parts of the capital budget last year after warning lawmakers the budget they passed was too fat.
On Wednesday, he also called for an increased emphasis on renewable energy, an idea with broad support among lawmakers. As part of that, though, he wants the state to spend at least $65 million to lay the groundwork for a Susitna dam project that — like the major natural gas pipeline the state is pursuing — may never come to fruition.
Many lawmakers are becoming increasingly skeptical about the gas line prospects, though Parnell said the state is closer than ever in securing a line — a position echoed by some Democrats who want the state to see the current process for getting a line through before looking for alternatives.
Parnell, who was recently elected to his first full term, after taking office when Sarah Palin quit in 2009, is maintaining much the same focus as he did during his first year in office: on family and fiscal issues.
On Wednesday night, he lashed out at the federal government, vowing to take all lawful steps to protect the state's sovereignty and its right to develop resources now virtually locked up on federal lands. He repeated his call for suspending the 8-cents-per-gallon state motor fuels tax to help ease the burden of high gas prices, an idea that stalled in the last legislative session. And he sought progress in implementing so-called "performance" scholarships.
The scholarship concept was approved by the Legislature last year but a funding mechanism wasn't. Parnell included $8.2 million for scholarships in his budget proposal for fiscal year 2012, but he favors fencing off $400 million to create a long-term means of funding scholarships into the future. Some lawmakers are leery of setting side such a huge chunk of funding.
There are also concerns, voiced Wednesday night by Sen. Kevin Meyer, R-Anchorage, about ensuring the curriculum students must complete to be eligible is accessible to all.