The state Department of Revenue makes its spring forecast today. In December, the department projected a $514 million deficit for fiscal year 2002 which begins in July. Oil prices have dipped, so now the gap is likely to surpass $600 million.
To cover it, the Legislature will tap the Constitutional Budget Reserve, now at $2.86 billion. So the money is there. And the reserve itself makes money, mostly in bonds which have fared well as stocks have tumbled. The reserve's short-term bond investments stand to earn $230 million to $240 million this year.
But the budget reserve, with its billions from settlements of oil tax and royalty disputes, has no more large deposits on the horizon, and the state's projected spending shortfalls far outstrip the reserve's earnngs.
That means the state's reserve will run out in the next few years. The revenue department's last projection had the reserve empty by December 2005. Declining oil prices, though nowhere near the single digits of 1998, likely will mean the reserve will empty by summer 2005.
Clearly, the state's elected leaders have an obligation to put Alaska on sounder financial footing before then. That's the unfinished business. It seems just as clear that a sound plan will include a mix of revenue sources -- a broad-based tax, some use of Alaska Permanent Fund earnings, possible additional alcohol or corporate taxes, some use of the budget reserve.
A group of lawmakers is talking about a sound financial plan for the state. Two elements likely will limit their efforts for now: history and politics.
History. Alaska has muddled through. Tax settlements and run-ups in oil prices gave the lie to claims of imminent disaster common in 1998 and 1999. But those were either one-shot deposits or the high end of the oil price roller-coaster. We can't bank on such blessings in the future.
Despite this, nobody wants to play Jeremiah anymore. There's still a tendency to believe the day of reckoning won't really come.
Politics: Nothing likely will happen this legislative session. Nothing likely will happen in 2002, an election year and gubernatorial election year to boot. Calls for an income tax or whispers for use of Permanent Fund earnings are going nowhere.
Several years ago, House Speaker Brian Porter remarked that Alaskans tend to wait until problems grow to critical mass, then scramble to solve them. That's a dangerous way to run a state or a business.
Better if we can recognize the critical mass gathering, and pre-empt it by acting. Today's revenue forecast may aid that recognition and contribute to the public discussion. We have reserves. That buys time.
Let's not waste it.
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