Oil price rise could ease budget gap woes

Posted: Wednesday, September 13, 2000

ANCHORAGE (AP) -- The price of Alaska North Slope crude has been hovering at a 10-year high in recent days. But experts caution against counting on oil prices to close the state's fiscal gap.

Alaska North Slope crude prices closed at $32.58 a barrel Tuesday. Prices have been at their highest levels since the Persian Gulf War in October 1990.

If those prices hold above $29 for another 8 1/2 months -- they've averaged about $29.30 so far this budget year -- oil revenue will cover state spending for only the third time in a decade, giving Alaska a reprieve from one of the thorniest problems facing the state: dependence on a dwindling crude oil production for state revenue. More than 70 percent of state revenue come from oil royalties and taxes.

Only 20 months ago, oil prices hit 30-year lows at $8 a barrel. The price collapse sent a shudder through the state, prompting calls for an income tax and a cap on the Permanent Fund dividend to meet state budget needs.

In the oil industry, low prices threw thousands out of work, halted North Slope development plans and prompted a round of mergers in which the company most responsible for Alaska's oil fortunes -- Atlantic Richfield Co. -- disappeared.

Today, planes carrying workers to the North Slope are full, companies have expanded development spending and high gas prices are fueling talk of a natural gas pipeline.

In state government, the panic to solve the chronic budget shortfall has, for the moment, calmed.

''We still need to build a bridge across the fiscal gap. But with high prices this year we are swinging over on a vine,'' said House Minority Leader Rep. Ethan Berkowitz, D-Anchorage.

State budget director Annalee McConnell was cautious prices would hold.

''We don't count chickens this early,'' she said.

The state would be foolish to take comfort in high prices now, said Scott Goldsmith, an economics professor at the University of Alaska Anchorage. The conventional wisdom is that prices will fall back toward $20 -- a price that would leave Alaska in a budget crunch, Goldsmith said.



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