Tags: Alaska | oil income | Bill Walker | Permanent Fund

Alaska Scrambles to Offset Steep Drop in Oil Income

By    |   Monday, 19 Jan 2015 02:36 PM

Falling oil prices mean hard times on the North Slope in Alaska these days, as state officials cast about for solutions to an ever-decreasing income.

Spending cuts, new taxes or raiding the Alaska Permanent Fund, which cuts checks to state residents each year from oil income, are being put forth as possible solutions to Alaska's rapidly diminishing oil wealth, The Washington Post reports.

"Alaska is one of seven states without a personal income tax, one of only five states without a state sales tax and the only state with neither," a state budget website boasts.
"Instead, Alaska relies on two main sources of revenue, oil taxes/royalties and federal funding to fund all state services, build and maintain necessary infrastructure and save for the future."

However, with 78 percent of its state revenue coming from oil production severance taxes, and oil prices dropping from $107 per barrel last April to $46.07 per barrel today, Alaska is facing serious budget problems in the not-too-far-distant future, The Wall Street Journal reports.

The state has seen an 80 percent plunge in production taxes and a drop in oil production from 2.1 million daily barrels in the late 1980s to just 509,500 barrels today, leaving the state with a $3.5 billion deficit in its $6.1 billion budget, the Post reports.

With oil paying for 89 percent of Alaska's operating revenue, Gov. Bill Walker wants state departments to cut 5-8 percent of their expenses this year to avoid depleting the $14 billion in reserves the state has.

"Even though we have the money to cover it, we're still going to make some significant changes on the spending side," Walker told the Journal.

However, David Teal, Legislative Finance Division director, told the Post: "The numbers just don't allow you to cut your way out of this, not without some severe impacts on the economy."

Shrinking oil prices have hit hard at not only Alaska but also other states where oil revenue is a significant part of state budgets, and Moody's Analytics estimates that if oil falls to $60 per barrel over the next three years, Alaska, North Dakota and parts of Texas will "likely fall into recession," while Louisiana, New Mexico and Wyoming also are expecting to encounter budgetary problems, the Journal reports.

Alaska State Sen. Bill Wielechowski has proposed keeping the earnings reserve account, which will pay out $100 million more to Alaskans than it brings in, off-limits to government use to make up the budget shortfall, and instead institute an oil tax.

"It's a permanent fund," he told SFGate. "It was intended to be there for future generations, to sock away some of our resource wealth so that our kids and grandkids and great-grandkids could enjoy the resource wealth that we have.

"And I think as we go deeper and deeper into deficit spending, we need to make sure that is protected."

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Spending cuts, new taxes or raiding the Alaska Permanent Fund, which cuts checks to state residents each year from oil income, are being put forth as possible solutions to Alaska's rapidly diminishing oil wealth, The Washington Post reports.
Alaska, oil income, Bill Walker, Permanent Fund
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2015-36-19
Monday, 19 Jan 2015 02:36 PM
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