Alaska Dispatch

Alaska's lawmakers have begun their yearly migration to the state capital. After legislators finish trickling in, the 28 Democrats and 32 Republicans will be ready to take on a potentially fiery debate over oil taxes, to solidify along party lines for the annual arguments over where to spend the state's money, and to tackle extensive energy issues that linger from last year's session and crippling fuel prices.

The gavel will drop Tuesday, Jan. 19, starting the second session of the 26th Alaska Legislature. During the ensuing 90 days, lawmakers, lobbyists and state departments will pursue their issues -- some of which are likely to sound a lot like campaigning as the 2010 election looms.

Every legislative session develops its own personality, sometimes a reflection of the individual personalities involved -- such as in 2009, when Gov. Sarah Palin returned to contentious relationships with lawmakers after a run for the vice presidency. Others take on tones rooted in issues, such as the prolonged 2008 sessions that resulted in the Alaska Gasline Inducement Act and netted a $500 million state subsidy for TransCanada to build the much-awaited pipeline.

This session's defining issues are up in the air, legislative leaders agree. But one way or another, most of the big debates will come back to money, including whether to save or spend an estimated $1 billion surplus due to relatively high oil prices. That chunk of change could be directed into savings already flush with billions, or could be allocated to looming problems casting a shadow over Alaska -- social problems, a massive backlog of maintenance needs on roads, bridges and state buildings, and health care.

Or, the money could be tucked away for the near future when oil production is expected to slide, choking the flow into the state's treasury as new exploration and development continue to taper down.

"Naturally there's pressure to keep the budget down, but there's money available to let the budget grow," House Speaker Mike Chenault, R-Nikiski, said. "The battle will be held to try and hold the line to keep state government down. Our revenue picture is looking bleaker and bleaker."

Money matters

House leadership is adamant that the cornerstone of this session -- and the only task legislators must accomplish -- is passing a budget.

But most everything else comes back to money, too

"How do we make sure that we take care of state government, services people need, and move forward with some capital projects in order to move Alaska forward?" Chenault asked. "And how do we save as much of that money as we can for future years? The key issue will be an operating budget that takes care of Alaska's needs, but controls spending."

Senate President Gary Stevens, a Kodiak Republican who leads a 16-member bipartisan majority, was not available for comment. But Sen. Con Bunde of Anchorage, who heads the Senate's four-member minority Republican bloc, said maintaining a tight grip on state spending will be key. He recalled 1985, when oil prices sat at $9 per barrel and the state was spiraling into a substantial recession. State spending was cut by 10 percent -- a tough choice that was necessary at the time. If Alaska keeps spending up now, he estimated 40 percent cuts in future years if oil production declines as much as some predict.

Gov. Sean Parnell has proposed a $10.5 billion state budget, an increase of about 8.6 percent in general fund spending over last year.

Bolstering a revenue source

Chief among the major issues looming is the way Alaska taxes oil, and whether changes should be made to the current tax structure -- Alaska's Clear and Equitable Share -- to make the state a more attractive place worldwide for oil company investment.

House lawmakers asked Parnell for a thorough ACES review, and the governor came through on Thursday with a Department of Revenue report that found the tax scheme has served Alaska well through the past two years. At the same time, that's not much time to evaluate a tax structure designed to carry the state's treasury through low and high oil prices.

In the House, Republicans are expected to file a bill calling for significant changes to ACES -- possibly even a new structure. But others, including members of the Senate majority and House Democrats, have said a rewrite isn't necessary, and modest changes such as those proposed by Parnell ought to be sufficient.

"We're going to take a good, hard look at it, but I'm skeptical," said Rep. Beth Kerttula, a Juneau Democrat who leads the House minority. "We haven't done real well with credits incentivizing in Alaska. Cook Inlet is a good example where we've done credit after credit -- and still, no action."

In case incentives don't deliver, the state should focus on renewable energy and diversifying the economy to build a buffer between Alaska's financial future and the oil industry, she said.

Smoothing relationships

Undergoing treatment out of state for a compressed nerve that will keep her away from the beginning days of the session, Kerttula said there's already a big difference between this year's session and last year's.

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