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Alaska, once oil-rich, now faces tough decisions on what parts of the state’s 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 state’s 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. “We’d still have $2.5 billion to go.”
The state’s solution, for now at least, is on raising money, not cutting services, according to David Teal, director of Alaska’s Legislative Finance Division. “The numbers just don’t 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 state’s first income and sales taxes and even reducing Alaska’s oil wealth fund, which shares the state’s oil wealth with virtually every Alaskan with an annual payment. Last year’s 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 don’t return to more profitable levels.
“I’m talking about deep cuts, and they will hurt,” Walker said in a recent televised address.
Walker also said work on the state’s natural gas pipeline would be accelerated, but still wouldn’t be ready to contribute to state revenues until 2023 or even later.
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But don’t call the huge deficit a crisis, Walker tells the Alaska Dispatch News.
“I don’t 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 Alaska’s economy.
“I’m 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 we’d be in a very different situation.”
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com