Recent talk of low oil prices and large spending deficits has many Alaskans taking note of the State's budget and how it works. It is rewarding as Senate President to see Alaskans more involved and more informed on their State's financial situation.

The State's budget is not an easy document to read. That's why I want to take this opportunity to explain the basics of the budget. You may have heard it said that we spend more than $6 billion per year-more per capita than other states. That is true. However, unless you understand how our unique budget works and where funds come from and go to, that statement can easily be misinterpreted.

To begin with, the State's revenue is made up of five parts, which represent the different "funds" the Administration uses to operate the State. You can think of those five funds as different piles of money or different bank accounts: 1) the General Fund (GF); 2) the Constitutional Budget Reserve Fund (CBR); 3)"Other" State funds; 4) Permanent Fund earnings; and 5) Federal funds.

When we think of the State's budget, we most often speak of the General Fund account, which is used to pay for the day-to-day operations of State government. State GF spending this year was budgeted at $2.3 billion. More than 60 percent of GF money comes from oil revenues. The remainder comes from a combination of other sources such as user and resources taxes, permits and fees, and investments.

The CBR account holds money set aside from one-time settlements on disputed oil and gas taxes. This account was set up to cover shortfalls in the budget due to fluctuating oil prices and production. This year, an estimated $1.1 billion will be needed to fill the gap.

The "Other" State funds category is made up of money generated by state-supported programs such as receipts from the Alaska Housing Finance Corporation and the Alaska Industrial Development and Export Authority, grants by Alaska Science and Technology Fund, loan repayments, and designated program receipts. These monies are generally set aside for designated uses and accounted for separately.

The Permanent Fund Earnings are held in the Earnings Reserve Account. The account contains approximately $6 billion and year-end (including unrealized gains). The Earnings Reserve Account is used to inflation-proof the principal of the fund and to pay the annual dividend checks. Unlike the principal of the fund, the Legislature can authorize spending from the Earnings Reserve Account.

The final fund making up the State's budget is money from the Federal government for federally funded projects and programs. The Federal government generally controls the way these funds can be spent-for instance, major road repairs, but not snow removal-and the State cannot use this money in any other way.

When you tally up the five different accounts you get the State's total source of funds of $6.66 billion:

As mentioned earlier, money in "other" and "federal funds" categories are already designated and cannot be used to fund day-to-day costs of running the State. CBR funds are made available only by special Legislative action requiring a three-quarter majority vote of both the House and Senate. That leaves the General Fund, which is the source of income for funding the day-to-day business of the State.

It is difficult to compare Alaska's budget to that of other states. Being a relatively new state, huge in size and made up of varied and dispersed communities, the State of Alaska has unique needs and responsibilities. One big financial difference between Alaska and other states is the Permanent Fund Dividend-approximately $1,500 per resident-which must be funded from the $6.66 billion revenues total. Another difference is that in Alaska the state funds larger shares of education, the court system, road construction, health services, and other functions that are largely supported by local taxes in most other states.

I encourage you to continue learning about the State's budget. The State faces a $1.1 billion shortfall between spending and revenues. Given projections of oil production and prices, the State will face increasing shortfalls in the future. Alaska needs to establish a long-term balanced budget plan. It is imperative that Alaskans be able to make informed decisions about State spending.

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