Legislative negotiators agree on state operating budget OBSTACLES: Impasse over capital budget is still the major issue.

JUNEAU -- House and Senate negotiators came to terms on a state operating budget Wednesday, a positive development in a fits-and-starts special session that is still a long way from over.
The major obstacle continued to be the capital budget. While leaders on all sides expressed hope that a resolution could be found, none of them, including the governor, publicly offered any new ways out of the mess.
Still, Wednesday was lauded as a good day, bringing a much-needed sign of progress to what has been for many lawmakers a painstakingly frustrating two-and-a-half weeks.
Agreement on the operating budget "does indicate that the House and Senate are communicating well and that the process is beginning to work," Gov. Sean Parnell said.
As part of finalizing the spending plan, negotiators agreed to provide $40 million to help municipalities and school districts with high energy costs and tinkered with the earlier-agreed-upon level of funding for a merit scholarship program and a program for students with unmet financial needs.
The energy funding was a priority for Sen. Lyman Hoffman, who wanted to establish a long-term revenue-sharing program but settled for the one-time funding when the House balked at taking up the revenue-sharing bill.
Parnell wanted more for merit scholarships. An earlier agreement gave each program $4.5 million. Under Wednesday's deal, $6 million would go toward merit scholarships and $3 million to needs-based aid.
The House also made a huge concession and leap of faith, agreeing to let $400 million for scholarships and student aid, and $200 million for developing an instate natural gas pipeline project -- money House GOP leaders wanted in the operating budget -- go into the capital bill.
The operating budget is expected to be on the House and Senate floors as early as Friday.
That clears the decks for lawmakers to focus full attention on reaching agreement on coastal management and the capital budget as the 30-day special session heads into its fourth week.
Parnell, whom some senators blame for the budget mess the Legislature has found itself in, could well be a pivotal figure in efforts to break the logjam.
The sticking point has been contingency and non-severability language that the Senate Finance Committee added to its version of the capital bill. The language makes more than 100 wide-ranging energy projects, worth about $400 million, a take-it-or-leave-it package.
Senate leaders have said the language is needed to protect projects they deem important from indiscriminate vetoes. Parnell had said he'd need to rein in capital spending even more if a bill addressing oil taxes stalled, and some senators took that as a threat that he would cut their projects as revenge for the tax bill faltering in the Senate.
Parnell, in an interview with The Associated Press, said he has taken "excessive" steps to assure lawmakers he won't target them and that he won't abuse his veto authority. He said the time has come for the Senate -- if it believes strongly in its language -- to send the House a bill. If the House strips the language, he said the two sides could go to conference committee to hash out their differences.
"To try to guarantee an outcome by one body holding a bill hostage is not how our bicameral Legislature is supposed to work under our constitution," he said.
Senate President Gary Stevens has been cool to the conference committee idea, saying he's not sure how that situation would be any different than the one the Legislature finds itself in now.
It's not clear how far the Senate's bipartisan majority bloc will be willing to push the language issue.

Sen. Bert Stedman, the Republican co-chair of the Senate Finance Committee, said the majority is "firm in its position that the language is appropriate" -- and in line with the Legislature's role as the appropriating body. Members of the House's GOP-led majority have complained bitterly about the Senate's handling of the capital budget.