Revenue forecast glum as Dunleavy must solve billion-dollar budget hole - Must Read Alaska
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Saturday, September 26, 2020
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Revenue forecast glum as Dunleavy must solve billion-dollar budget hole

THIS IS BUDGET WEEK FOR THE GOVERNOR

The Alaska fall revenue forecast for the coming fiscal year is out, and it’s not a pretty picture for how the state will pay for services.

While Unrestricted General Fund revenue totaled $2.6 billion in Fiscal Year 2019 and is forecast to be $2.1 billion in FY 2020, it will drop to $2.0 billion in FY 2021.

The drop of $600 million in three years of revenues makes the coming budget cycle at least as challenging as the last one, where Alaska lawmakers and the governor struggled to balance spending with diminishing revenue. After the governor offered his budget last year, it was only days before the drumbeat of “Recall Dunleavy” started among Democrats.

The revenue forecast excludes some $2.9 billion that the Permanent Fund Earnings Reserve Account will transfer to the General Fund this budget cycle. That figure will increase to $3.1 billion in FY 2021 — funds that pay for Permanent Fund dividends and for general government.

One of the main drivers of the falling revenue forecast is the anticipated price of oil, which is falling. While North Slope crude averaged $69.46 in FY 2019, it’s now projected at $63.54 for FY 2020. But for FY 2021, it will drop to $59 a barrel, according to the Department of Revenue.

While prices are softening, the overall production is still sagging, and new oil fields and finds won’t fill the gap until later in the 2020s, when production will come roaring back due to the stable tax policy of SB 21, passed in 2013 by the Legislature and given a vote of confidence by the public in 2014 during a referendum to toss it out.

But bringing oil online in today’s regulatory environment is a long game, and if tax policies change under the Our Fair Share initiative that is now collecting signatures, the investment decisions on new fields may be put back on the shelf by the oil companies that would bring that oil to market.

For FY 2019, North Slope oil production averaged 496,900 barrels per day. The forecast assumes that production will decline to 492,100 barrels per day in FY 2020 and 490,500 barrels per day in FY 2021.

That is a 1.25 percent drop, but represents millions lost in taxes and royalties to the state. The Department of Revenue projects there will be $200 million less in those payments by oil companies, primarily because of the downward trend of oil prices.

Gov. Dunleavy is expected to roll out his proposed state budget for the coming year. It’s due before Dec. 15, and it’s a solid bet that he will not release the budget on Friday, Dec. 13, but likely will do the big reveal midweek.

The revenue forecast is a piece of the process, meant to advise the governor and Legislature in making budget decisions for the fiscal year that will start July 1.

In the 42 years since oil started moving through the Trans Alaska Pipeline system, Alaska has paid for state services using oil and gas revenues, which have comprised 83 percent of the unrestricted State General Fund. The pipeline is currently moving less than one-quarter of its capacity.

Since the 2015 drop in oil prices, however, the revenue hasn’t kept up with the expenditures, which are the highest per capita in the nation, according to KFF.org.

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Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • Let me start by saying that no new taxes will fix the glutenous spending habits of the Legislature.

    Six weeks from now, that’s all you’re gonna hear from the PFD thieves who want to impeach the governor, increase spending on arguably the worst school system in America, fund a university system that collectively couldn’t lace up a set of tennis shoes and, worst of all, fail to cut the size of government, just because the unions don’t like that.

    I can hardly wait to see which elected idiot is going to jump out too play the part of the Pied Piper for the “taxes cure all” crowd……May Santa bring that idiot, or idiots a small sack of coal.

    Cut cut cut, that’s the only answer.

    • Well said!

  • The governor is one of the very few elected officials that can be trusted to work at the state’s fiscal problems and get something done about them….he learned a lot on his last go round and now that a larger share of the public gets the picture. Perhaps he will do much better this time around…There is certainly not much hope for the leadership in either the House or the Senate to be of much help…..

  • We saw the Arduin plan — cut everything with an axe. Cut even if it costs you money — if road monies give you a 9 to 1 return on investment cut them anyway.
    _
    There is another model — ” The Nordic region is not only “just as business-friendly as the U.S.” but also better on key free-market indexes, including greater protection of private property, less impact on competition from government controls and more openness to trade and capital flows. ”
    _
    This is from an article about Finland — which spends much more per capita than we do and yet has a thriving economy. Finland is a Capitalist Paradise: https://www.nytimes.com/2019/12/07/opinion/sunday/finland-socialism-capitalism.html

    • Adam: That would have been the Babcock plan. Arduin was tasked with identifying around $1.6B in potential cuts to state government spending via consolidation or reduction in state spending. Arduin did the job to which she was tasked. After that, Governor Dunleavy’s then Chief of Staff pretty much took the helm and cut in an ill-informed way even while adding staff based on raw political criteria. The result was, in all too many instances, appointment of hacks and ill-considered chops, all of which hurt the Governor. Which is why Tuckerman Babcock went down the trail but not before leaving Governor Dunleavy in a precarious position.

      • Well Joe, it was Arduin who defended those cuts before the finance committees in legislature, along with Tangeman. Babcock may have been behind much of it but he was nowhere to be found and everything was left to Ed King, Arduin and Tangeman.

  • Simple Solution …. continue to cut the budget!
    (Trimming fat, waste, and the incessant bureaucracy)

  • I am not happy with the Governor not balancing the state budget faster. The only way to get a balanced budget is to first do everything we can in cutting the costs of the state government to the bone. The liberals think that we can levy taxes to make up the difference….. not without making the costs of living here prohibitive for the majority of citizens whether the Dems admit it or not. Alaska needs to lead the country in downsizing state government to a sustainable level before any taxes are considered.

    • Liberals think that they only have to levy taxes on those who do not vote for them. Their constituents remain on the take.

  • “…Dunleavy must solve billion-dollar budget hole”
    .
    The Alaska Municipal League Investment Pool has $630+M stashed out of taxpayers’ reach.
    .
    Put that back in the Treasury, Alaska has… what, a $1B – $.63B = $.37B “budget hole”?
    .
    Commission a forensic audit of state finances and management practices, find out what money’s coming in, where it goes, who’s rat-holing it out of taxpayers’ view, put the money back where it’s supposed to be, Alaska has… what, a $.37B – $God knows how much because we sure don’t = $enough to pay Permanent Fund Dividends in the amount the law requires…?
    .
    Maybe kick the damned, blood-sucking lobbyist industry out of the Holy City of Juneau… impose, say, a 25% excise tax on retainers paid to the lobbyist part of Alaska’s lobbyist-legislator team.
    .
    Then, who knows… productive Alaskans might not need to be bombarded 24/7 with repulsive, condescending (expl del) about “budget”!
    .
    Remember, Gentle Readers, a “budget” is just a piece of paper, a ransom demand from our government… “Give Us More Money or your so-called basic services’ll die and you’ll have to face the noisy wrath of cute and fuzzy people who look just like you”!
    .
    Remind again what we Americans do with ransom notes… and people who send them?

    • For fact, the lower kuskokwim school district had and spent $7 million cash for the purchase of a building last year, straight out of budget reserve.

      How many school districts in Alaska and how much are they ratholing?

      This crap of forward funding is the worst policy the legisators have ever come up with.

      • Most districts have a reserve. It takes the school board to approve spending from it. It’s good to have a little nest egg. I hope you have a nest egg for hard times.

  • It is all about the rich and powerful getting their hands on the PFD through scare tactics and refusing to cut or take less of anything at the table. The ones who whined the most from last years budget cuts are the ones who would feel the pain the most government and union employees. If they get their way the PFD and any moneys from it will only be a pipe dream going forward. They will drain the fund and see how much sticks on their hands while telling us Alaskans we are broke and need to tax you to pay them and their high end life styles. Vote for people who have the common Alaskans at heart and not the special interests who do nothing but steel from us and whine loudly when they do not get their way.

  • Any economist will warn against cutting solely to balance the budget. We need to generate revenue. Any ideas? Because just blaming liberals is not generating any revenue. Just hot air. Liberals haven’t been in power in Alaska for decades. It sounds great, but anyone blaming liberals in reality needs their head examined.

    • No so. You have to first control out of control spending. You have to stop the bleeding. Then, you can think about revenue. We have options. Bring back the taxes we used to have before the hayday of oil. That would be a start. Works for the lower 49 states.

      • For once I agree with GF. Bring back the income tax that used to exist in the State. Alaskans have become such an “entitled” bunch – spoiled by oil-driven prosperity.

  • I’m a UAA employee and just got a pay raise. So much for cutting the budget…it’s all funny money.

  • Right. Arduin did the job she was asked to do. The cuts were mostly Babcock’s. Whether you consider the cuts advised or justified, the manner in which the cuts were selected and communicated were demonstrably bad and lead to great political problems for the governor.

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