CHERYL FRASCA: No, no, no, they're bringing it back. Don't worry, he'll be back, so, you know, I'm just in a little intermission here.

You know, when the Governor started talking about that poster, he started to talk about, you know, looking to Alaskans to be benevolent, et cetera. Well, what I thought he was going to talk about was the mansion ornament that the First Lady sells to raise money to repair the governor's house. So they are available, $20. This is my effort to raise program receipts to help pay for repairs of the governor's house. So should you be so inclined here they are.

So my part of the show and I'll do this fairly quickly is to just sort of talk about well, what are the facts, and counting the beans, sorting them out. So D.J., the first slide.

In terms of revenues -- the other thing I could do as I look around at the tables, I could probably at each table there's somebody who's interested in a capital project, okay. And I know you really want to know is it in or is it out. Well, I'm not gonna talk about it here, but there will be information at the back or on our website. O & B's website has all the budget details there.

But in terms of revenues -- and at 2:00 o'clock today the Commissioner of Revenue, Bill Corbus, is gonna have a press conference where they do release the entire revenue forecast. These are the -- sort of the key numbers that we look at in terms of the price per barrel. 57.30, that compares to 38.60 that was projected last spring. Revenue does forecasts twice a year. You can see the production for '06 and '07 and the bottom lines in terms of revenues, 3.8 billion for this current fiscal year and then -- so that's about -- last fall we thought it was gonna be -- or last spring when the legislature ended, about 2.6 billion. So the difference equals the surplus. So next slide, D.J.

Current year surplus, the governor's already reviewed what our proposal will be and so stay tuned for more details as the session approaches on that. Next slide, D.J.

In terms of the '07 operating budget, the Governor highlighted some of the increases that basically are on pretty much automatic pilot in terms of some formula driven programs. The first two years that we were in office we cut about $150 million out of the budget. In addition we had a lot of cost avoidance that we were able to achieve such as the Medicaid refinancing and other tricks of the trade that some of our commissioners were able to pull together.

But this year we're really having to face up with some increased cost, truly increased costs. Medicaid, $104 million and that includes the 45 million that the Governor mentioned for Fair Share when we lost in court so we now have to use state funds instead of federal funds to pay for these cost. K through 12, the 90 million, the university, a total of 42 million. These are general funds, and then Transportation another 42 million. And that's a lot, primarily maintenance of roads, facilities, airports, as well as the marine highway system. So that attributes to a big chunk of the increase. Next slide, D.J.

Another way of looking at it in terms of the kinds of things we're spending money on, salaries and benefits are up 9 percent and a great deal of that, 5 percent, is due to the increased retirement system cost, about $34 million is the state's share of that retirement system increase. Commodities are up 15 percent primarily due to fuel, especially the marine highway system is one who is really sucking it up.

Debt service, that's up 16 percent and the interesting thing here is that the total cost of debt is about $207 million. 90 percent of that is for decisions that were made prior to our administration. So almost 190 million of the debt is for decisions that were made before we came in office, but they are part of our spending. Next slide, D.J.

So in terms of positions, you know, again it kind of bothers me talking about all these little numbers, it's kind of counting the beans. I'll tell you my interest in another slide or so.

But in terms of positions, I know folks will zero in on well, how many positions have you added. What they don't -- won't talk about is the first two years we cut 473 positions. And this has allowed us to free up resources during the first two years and now we're able to direct them to the priorities of this administration, whether it be the dollars we're spending, the positions we're funding, the programs we're funding. So as a result in the executive branch we have about 235 new positions, but a number of those, 51, are funded by federal funds, 10 of them are supported by enterprises like the Aerospace Corporation, 21 are self-supporting in that they generate fees that support their activities, and 17 are the result of legislation that was passed, i.e., a fiscal note if you're familiar with how the process works.

So then in terms of well, what's the rest, we've got 10 that are in the Department of Corrections, eight that are in the Public Safety Department, some are troopers, some are for the crime lab and some are for court service officers which will free up troopers to do trooper type stuff.

And I would like for the Colonel to stand, Julia Grimes, I don't know how many of you get to actually see her, but we're quite proud of the work that she's doing.

And I won't tell you about the story when I talked to Commissioner Tandeske about CSI, he had never watched it, but now he tells me he's a fan.

Health & Social Services, the Veterans' Home, 10 positions to open up that in Palmer. Pioneer Home, another 22 positions. We're taking advantage of some of the space that's existing in the Pioneer Home including Sitka and Anchorage. And then public health, 19 new positions related to epidemiology, public health nursing. And vocational education, we're increasing opportunities for voc ed, at the same time we've gotta provide some instructors.

And so there are reasons and stories behind every number in terms of the positions that we are proposing to add to the budget. So we look forward to working with the legislature as they review that. Next slide, D.J.

In terms of the capital budget priority areas for investment, transportation $1.4 billion, certainly a significant chunk of that is from the federal government and then in the development and natural resources area another $107 million. And the federal government continues to be the primary funder of our capital budget, but we do have $432 million in general funds invested in a number of projects.

One other area just to quickly mention is in terms of our strategy for financing the university capital budget projects, we're gonna refinance some tobacco bonds that were originally sold in the 2000/2001, and they have a range of expected return by doing the refinancing, it's an opportunity that's presented itself and we're going to use it to finance the university capital budget which does include 55 million for the UAA Science Building which the Governor mentioned. Next slide, D.j.

And so finally in terms of talking about the budget -- what I just talked to you about was a bunch of numbers, but we really have been working these three years to shift the focus to what's the budget's return on investment to Alaskans. It's not just spending money. And, you know, businesses, you all have a bottom line, football has a final score or the Super Bowl and cars have fuel efficiency, you have some measure of how well they're doing or your teams doing. So how do citizens know how well government is doing? And next slide.

And so our budget is about delivering results. And we've shifted the focus of our budget discussions to how well are you delivering the promised results, how effective are you, how efficient are you in using public resources, not how quickly you do something, but what's the benefit per dollar spent. And so it has given the budget discussions a whole shift in paradigm and it's been really kind of fun from my perspective, but the departments aren't necessarily as thrilled with it and none of you commissioners talk about that, okay, after this?

So -- but it's been very interesting and very different to try to get us focused, what are we -- when we increase investment in your program, what are the expected increased returns as opposed to just how much more is it.

So that's the rap that we've been traveling down and I think it's pretty exciting and it really is making government accountable to Alaskans for not just spending the money, but making sure that they get results for the dollars invested.

So with that I will turn that back over to the Governor.

GOVERNOR MURKOWSKI: Thank you, Cheryl. And I'm going to wind this up, but I think her presentation pretty much emphasizes that we're still pretty much on course from where we were when we came in on day one. We continue to emphasize accountability in government, we measure the effectiveness of many services and that's what her department does well. And programs funded by state government to make a determination whether we should keep 'em or not. So I think we're on a sound foundation.

You know, I recall some conversation Nancy and I had three years ago when we were contemplating running for this office. And some of the things that formulated our decision were talking to Alaskans. I remember we went up to Talkeetna and met with a youth group from all over the state of Alaska representative, and, you know, their concerns were very basic. They said gee, you know, we talk to other kids, they can't find jobs, jobs are tough, what's the future, what are we gonna do when we finish high school, we're going onto college, we're not really interested in a job, pardon me, at McDonald's or K-Mart or -- they want a future. And we heard a similar message when we were out in rural Alaska in Bristol Bay regions, you know, not much opportunity for jobs in the area they live.

Some of that's starting to turn around, you know, it was a great boon when Shell came back. And Shell's back and initiating an exploration, they've taken a position in leasing out on the Alaska peninsula. That has a great, great potential, believe me, great. And it's new and it provides opportunities for those in rural Alaska that -- in that particular area. We've got Conoco with a budget, I think, of about 800 million this year. BP, over 600 million. It's not going for ships like it used to, it's going into Alaska. Okay. These are changes and these are major changes. The private sector added new jobs, 2003/2004, about 9,000 jobs.

So as we look at things in winding this thing up, we've got a lot of opportunities, a lot of those opportunities are here today. And really that's what this budget is about, it's a budget about people, it's a budget about government services that should be legitimately provided to people. And that's what I think our spending decisions have been about.

You know, our job is to take responsibility now for the Alaska of tomorrow. That's just what we're doing. So I'm confident our continued investment in quality education, resource development, it creates these job opportunities and a stable economy, a key to achieving that goal.

So from our family to yours, a Merry Christmas and we look forward to taking your questions, particularly Cheryl.