Alaska Fiscal Policy: Dealing with $80 oil …

At the request of the (Anchorage Municipal) Budget Advisory Commission, yesterday (November 5) I made a presentation on Alaska Fiscal Policy.  When I was first asked to give the presentation the working title was “The need for implementing sustainable budgets.”  Due to dramatic changes since then in the oil markets, however, by the time I gave it yesterday the title was “Alaska Fiscal Policy:  Dealing with $90 $80 oil.”

As I have written previously on these pages Alaska is in the midst of what are becoming gut wrenching drops in state revenues.   Assuming oil prices hold at or near $80 for the remainder of the Fiscal Year (which may be a heroic assumption given the continuing turmoil in oil markets), state unrestricted general fund revenues will total about $3 billion.  While that may seem alot, state spending for this year is currently set at $6.2 billion, resulting (if things continue on their current course) in a budget deficit which will land somewhere in the neighborhood of $3 billion by the end of the fiscal year.

To bring that number home, at that level the deficit will equal roughly $4,500 per Alaska man, woman and child.  To bring that even closer to home, for those that are suggesting the current level of state spending cannot be reduced any further, and as a result any differences will need to be made up through taxes and other revenue “enhancements,” the amount of such revenue adders will need to equal $18,000 per every Alaska family of four just for state spending to break even for the year.

As I said during the presentation yesterday, most observers now predict that oil prices in this range are likely to last at least for a couple of years, with some suggesting instead we are now at the front end a long term readjustment in oil pricing fundamentals which will last much longer.  Given the reduced level of state savings remaining due to the deficit budgets of the last two years, either way Alaska is facing the need for substantial changes in state spending levels in the very near future.   As a state, we simply don’t have the reserves remaining to ride out this price environment for an extended period.

I will be writing more — much more — on this issue over the next several months.   For now, however, the slide deck I used yesterday to discuss the issue is available here.  Please feel free to react and comment below.

My closing statement …

DebateYesterday a friend asked me to sum up in a sentence my “closing statement” on this year’s state-level (Governor and  legislative) races.

The following — from a 2010 Wall Street Journal editorial looking back on the loss by the Republicans of the federal House of Representatives in 2006 — is what popped into my head: Continue reading

The most important question of this election ….

Dollar signANS oil prices, which as most will recall drive 90% of the Alaska state government revenue, fell again Wednesday to $82.16 per barrel.

The current state budget, which already was $1.6 billion in the red when it passed, is predicated on oil prices averaging $105 per barrel.  (The breakeven price for the budget is roughly $117 per barrel.)

Each dollar change in the price of oil is equal to roughly $90 million in state oil revenues.  That means if oil prices for the year settle at $95/barrel, the budget deficit will grow to $2.5 billion, at $90/barrel to something approaching $3 billion, and at $85/barrel to something on the order of $3.4 billion. Continue reading

Alaskans can handle the truth, even if some are in denial …

Screenshot 2014-10-12 16.48.51Earlier this week, as part of the “It’s Our Future” campaign, we started running web ads that asserted simply, and correctly, that if those legislators who have voted for state budgets since 2012 are “allowed to continue spending Alaska’s money at the rate we are on, you can kiss the #PFD goodbye.”

We made equally clear that, in casting votes to continue spending far in excess of sustainable levels, those same legislators necessarily are “eyeing” the Permanent Fund earnings because, as the state’s best economic analysts have made clear there will be nowhere else for the state to turn to for revenues at a point in the not too distant future .

The reaction by some has been humorous, in a Greek tragedy sort of way.  Rather than deal with the statement on the merits, a few have resorted instead with variations of “you lie.”  I suppose when you don’t have the facts on your side that’s about the best you can do. Continue reading

Bill Walker: “I will … put in place a sustainable budget.”

Web Note 14 Fiscal Burden_Page_01

Click above to read ISER Web Note 14.

Two years ago the University of Alaska – Anchorage Institute of Social and Economic Research (ISER), the state’s best economic think tank, said this:  “Right now, the state is on a path it can’t sustain. … Reasonable assumptions … suggest we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash.”

ISER also offered a solution.  “What can the state do to avoid a major fiscal and economic crisis? The answer is to save more and restrict the rate of spending growth. All revenues above the sustainable spending level of $5.5 … would be channeled into savings.” Continue reading

Guest Column: Care Clift, the Alaska Libertarian Party Candidate for Governor

Publisher’s Note:  This is the second in a continuing series of guest columns by various state-level candidates who are focusing in this election cycle on the issues relevant to this blog — Alaska oil, gas and fiscal policy.  The first was by Alaska Constitution Party candidate for Governor J.R. Myers, and is available here.  The following is from the Alaska Libertarian Party candidate for Governor, Care Clift (website, Facebook).  The reason for publishing these pieces is explained in greater detail in the preamble to the previous piece from J.R. Myers. Continue reading

A Pretty Big Deal (… and an important event)

Alaska’s fiscal dilemma in a nutshell (and an opportunity to learn a lot more about it) ….  To learn more about the event, click here.

Guest column from Daniel Hamm, President, Alaska Republican Assemly

Publisher’s Note:  In a 2010 editorial the Wall St. Journal had this to say looking back at the 2006 loss by Republicans of the U.S. House of Representatives:  “It isn’t easy to spend so much money so egregiously that even Nancy Pelosi could campaign as a relative fiscal conservative, but the Tom DeLay Republicans managed the feat in 2006.”  Daniel Hamm writes below about seeing the same in this year’s Alaska legislative races. Continue reading

Damn market economics …

Please god ...While it has happened occasionally since prices recovered from their 2008 crash lows, Monday was the first time in awhile that ANS oil prices have fallen below $100/barrel. The occasion seemed an appropriate time to check in on where price forecasts are headed generally in the current market environment. Continue reading

The revised candidate questionnaire …

QuestionnaireYesterday morning I received a call from Amanda Coyne asking for a response to concerns she was hearing from incumbent legislators that one of the questions on the questionnaire I had forward to all candidates last week put them in a difficult position.  The reason for and a link to the initial questionnaire is here. Continue reading