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State official outlines fiscal challenges at meetings

Posted: Wednesday, October 10, 2001

In 1995, state budget forecasters predicted Alaska would be out of money by now. However, deep fiscal cuts, huge royalty settlements from oil companies and interest earnings have forestalled the Constitutional Budget Reserve from being emptied.

The new projection is that the state's rainy day fund will be dry by this time in 2005.

Larry Persily, deputy commissioner of the state Department of Revenue, was in Soldotna Tuesday speaking about the budget problem, first at the Soldotna Chamber of Commerce luncheon at noon, and later at a town meeting at the Soldotna Senior Citizens Center. His visit is part of a series of town meetings around the state.

"There are a lot of opportunities for us to get out of the fiscal mess we're in," Persily said.

The Constitutional Budget Reserve was approved by voters in 1990 as a savings account for future settlements from disputed oil and gas tax and royalty cases. It was created to cover fluctuating oil revenue, allowing the state to meet the budget in years of low prices.

The problem is that the state spends more money than it receives from North Slope oil revenue and has been dipping into the CBR for most of the last decade to make up the difference.

"If you think back to the 1970s and '80s, the state provided the services people wanted ... and we had the cash flow to cover it," he said. "In the 1990s, you didn't see a dip in services because we were dipping into the Constitutional Budget Reserve."

Oil in the 1980s brought in $2.4 billion of revenue a year, Persily said. In the '90s, it was $1.7 billion, and in this decade it's expected to provide $1.2 billion.

"This decade we're expected to take in about half what we did in the '80s," he said.

He pointed out that the CBR is not easily or regularly replenished. As the state collects on royalty disputes, the money is put in the CBR. However, the large payments, in the hundreds of millions or even billions of dollars, are a thing of the past, he said.

The CBR started the fiscal year in July with about $3 billion in it. Persily said he would like to see at least half that amount remain in the reserve to balance the budget in years of low oil prices.

He held out the possibility that oil prices will skyrocket and keep the state out of fiscal trouble for a longer time. But because of declining production, he said, the price of oil would have to be $48 per barrel by the end of the decade to balance the budget.

"I don't think that will happen," he said.

Persily said the state should consider formulating a plan not for the indefinite future, but for the next seven or eight years. At that point, it's hoped that either the proposed natural gas pipeline, National Petroleum Reserve-Alaska or the Arctic National Wildlife Refuge will be online and producing revenue for the state.

"It's impossible to come up with a balanced budget plan that will last forever," he said.

Persily displayed a World Wide Web site to the chamber audience that allows Alaskans to try and balance the budget in the face of declining oil revenues for the next decade. Users can manipulate a number of variables, such as capping the Alaska Permanent Fund dividend check, instituting state sales, income, alcohol, cruise ship or gasoline tax, putting to use the permanent fund's surplus earnings or increasing the oil and gas production tax.

The address is www.revenue.state.ak.us/. Click on "Revenue Fiscal Model" under "Hot Topics." Instructions are available there. Users will need Microsoft Excel to run the worksheet.



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