Late last week I spoke to the Valley Republican Women’s Club (Thursday) and the Kenai Chapter of the Alaska Support Industry Alliance (Friday). The subject for both was A Way Forward on the Alaska Budget.
As I have continued to speak to Alaskans about this issue over the last several weeks in both public forums and elsewhere I increasingly have come to realize that the current debate over Alaska’s fiscal situation ultimately boils down to two issues: first, the outlook for future oil (and LNG) price and production levels, and second, the perceived ability to cut state spending further from current levels.
If you believe the out-years (beyond three years) of the price and production forecast reflected in the Department of Revenue’s Fall 2015 Revenue Sources Book (RSB) are undeniably accurate, or if you believe that spending cannot be cut significantly from current levels, then you come to one conclusion.
On the other hand, if you believe as I do both that the out-year forecast contained in the Fall 2015 RSB may be overly pessimistic and that state spending can be reset successfully nearer levels which are more reflective of the 11-year period extending from FY 1995 – 2006 (the last time Alaska went through a low revenue cycle), adjusted for inflation and population growth — in other words, on what economists refer to as a real (apples-to-apples) basis — then you come to different conclusion. Continue reading