April 17, 2002 The Anchorage Daily News on higher oil prices and state fiscal woes

Posted: Monday, April 22, 2002

The recent bounce in oil prices is welcome news for Alaska, but $21 a barrel oil isn't going to fix the long-term problem with state finances.

It's a matter of simple math.

The latest price spike will trim only $80 million from what was a $900 million fiscal gap for this year. That's not even 10 percent of the problem.

Getting the extra $80 million this year means the Constitutional Budget Reserve fund would last another 35 days longer than previously projected.

Thirty-five days.

The sad truth is higher oil prices are not going to bail out Alaska. They produce a mere hiccup in state revenues. They won't save lawmakers and the public from having to face tough choices about how to pay for state services.

Even if OPEC manipulation and Mideast instability keep prices higher for longer than expected, the state's main reserve fund will last only a few months longer. The state would continue to eat up savings at the rate of about $1 billion a year.

Yet there is no sense of urgency among the leadership of the Legislature. The CBR still has enough money to last two, maybe three, years. To politicians who don't want to push responsible but unpopular fiscal measures, two or three years might as well be a lifetime.

But there is real danger in doing nothing.

When the budget reserve is gone, the state loses its last defense against a catastrophic drop in oil prices. Instead of a $1 billion annual shortfall, low prices would produce a gap of $1.5 billion or more -- with no idle money left to make up the difference. Say goodbye to your Permanent Fund dividend, and brace yourself for catastrophic cuts in basic services like education and public safety.

That's not such a remote scenario. Twice in the past decade and a half, oil prices have dropped into the $10 per barrel range -- half what they are today. At those prices, disaster is unavoidable.

The CBR was supposed to be a ''shock absorber,'' to help the state weather the inevitable swings in oil prices. In bad times, it would supply money to balance the budget. In good times, the money would be repaid.

Instead, lawmakers have used the reserve as a slush fund to postpone tough choices. They have used the reserve to let Alaskans enjoy an extra $1 billion a year in public services beyond what the state can afford over the long term.

It's looking more and more as if this Legislature will do nothing that even begins to stabilize state finances, despite the pressure from insurgents in the bipartisan fiscal policy caucus. Legislative leaders are content to keep pulling that $1 billion a year out of savings as long as it is there. This dithering by the House and Senate leadership may be politically expedient, but it is an irresponsible gamble with Alaska's future.



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