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Where's the concern?

Posted: July 15, 2012 - 8:00am

The decline in the price per barrel of North Slope crude oil has led to concerns in some corners about the budget for the state of Alaska. Chief among those concerns is whether the state revenue generated from the oil patch will be enough to cover the current spending plan without having to dip into the state's savings account.

Legislators have said the state's budget was built on the forecast of oil prices of about $100 per barrel. From Jan. 2 to July 10, the price of North Slope crude has fluctuated from a high of $127.99, to a low of $92.44.

Our point is this: With a budget that relies on oil revenue to cover some 90 percent of spending, what kind of contingency plan does the state have for the time when oil prices don't average out as expected?

There have been concerns raised, but those raising them seem mostly concerned with increasing the amount of oil being produced. The high cost of oil has masked issues from the state's declining production, and we agree that finding a way to spur more production is a key to the long-term health of Alaska's economy. But it worries us that there doesn't seem to be much concern over dipping into savings should the revenue not match up with expenditures.

If the economic downturn has taught us one thing, it's that any good budget manager had better have a good contingency plan. We've been fortunate, as we said, that the high cost of oil has allowed us to rebuild our savings account over the past few years, a luxury most states can only dream of. However, dipping into savings to make up for budget shortfalls is not sustainable, and the price of oil is a volatile foundation for a budget. Alaska certainly has plenty of money in the bank for a rainy day, but we'd prefer the state have a contingency plan in place for when to dip into those funds, and when to make cuts, instead of proceeding as though we have a debit card with overdraft protection and we're just waiting for the next pay day.

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