Alaska Facing Huge Deficit Without Oil Tax Revenues

By Andy Tully
Posted on Tue, 27 January 2015 22:06 | 0

Alaska, once oil-rich, now faces tough decisions on what parts of the states budget
can be cut, and where it can find other sources of revenue to confront deficits it has
never faced before.

The part-time state legislature, whose 2014 session ended in April, had passed a
$6.1 billion budget for 2015, but since then a barrel of oil has lost more than half its
value. Add to that, Alaska gets 90 percent of its budget from oil taxes. So when the
2015 legislative session began Jan. 27, the states budget was $3.5 million short.

With an 80 percent drop in oil revenues since June, Alaska is over a barrel. It has no
state sales or income taxes, but it does have a kind of savings account from
previous oil revenues, but that may not be enough to make up for the shortfall.

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Even if you lay off every state employee, that only saves us a billion [dollars],
Representative Chris Tuck, a Democrat and the minority leader in the Alaska House
of Representatives, told The New York Times. Wed still have $2.5 billion to go.

The states solution, for now at least, is on raising money, not cutting services,
according to David Teal, director of Alaskas Legislative Finance Division. The
numbers just dont allow you to cut your way out of this, not without some severe
impacts on the economy, he said.

As a result, the new governor, Bill Walker previously a Republican who's now an
independent is considering something anathema to most members of his former
party: creating the states first income and sales taxes and even reducing Alaskas
oil wealth fund, which shares the states oil wealth with virtually every Alaskan with
an annual payment. Last years payment was $1,884 per person.

Besides sales and income taxes, Walker has proposed across-the-board budget cuts
of between 5 percent and 8 percent, and would deepen that cut to as much as 25
percent over a four-year period if oil prices dont return to more profitable levels.
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Im talking about deep cuts, and they will hurt, Walker said in a recent televised
address.
Walker also said work on the states natural gas pipeline would be accelerated, but
still wouldnt be ready to contribute to state revenues until 2023 or even later.

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But dont call the huge deficit a crisis, Walker tells the Alaska Dispatch News.
I dont use the word crisis, having been through some crises in Alaska, the
governor said. This is a downturn, this is a serious time to sit down and make some
changes within our fiscal structure.

Walker said the big difference between the current deficit and previous troubles,
including a similar collapse in oil prices in late 1980s, is that Alaska has saved
enough of its oil wealth to help ease the impact on Alaskas economy.

Im pleased we have a buffer, that we have savings, and I give credit to those who
were in the legislature and the administration that wisely put money aside, he said.
Without that wed be in a very different situation.

By Andy Tully of Oilprice.com