Falling oil prices widen state's budget gap

ANCHORAGE (AP) -- Falling crude prices could result in revenues plunging as much as $300 million lower than expected this budget year, according to Annalee McConnell, Gov. Tony Knowles' budget director.

The shortfall would create the possibility of a larger draw on the state's dwindling financial reserves, McConnell said Tuesday.

At the same time, the cost of covering state services is rising. Maintaining the same level of public services will require $115.5 million more this year than last, McConnell said. Knowles also wants about $54 million more next year for security, education and alcohol treatment.

For the past decade, Alaska's revenue has slipped along with falling oil production from North Slope oil fields. Only twice in the past 10 years has the state covered its costs. The deficit inevitably sparks debate over budget cuts, taxes or taking money from the Alaska Permanent Fund.

Between July 2000 and July 2001, the struggle eased when oil prices soared past $34 a barrel.

This budget year, oil revenues will account for about 80 percent of the state's budget. State spending was expected to outstrip oil money and other revenues by $474 million. That money would come from a reserve fund. Now, as oil prices fall lower than expected, closing at $16.40 Tuesday, the budget shortfall could stretch to more than $750 million.

''We're revising downward. The question is how much,'' Chuck Logsdon, chief petroleum economist for the state Revenue Department, told the Anchorage Daily News. The department will release a revised revenue forecast next month.

Oil prices have been softening for months. But since the Sept. 11 terrorist attacks, the softening has turned into a slump amid slack demand and squabbling between international oil producers about crude production levels. Logsdon said he also is cutting longer-term revenue forecasts for 2003.

If the governors' 2003 fiscal plan with its additional $169.5 million is approved and prices remain low, it could mean a draw on the reserve fund of $900 million to $1 billion. At that rate, the $2.8 billion reserve may be exhausted by 2005. If the reserve is exhausted, the state must find other revenue sources or cut the general fund by about one-third.

''Falling oil prices move up the drop dead date,'' said Scott Goldsmith, an economist with the Institute of Social and Economic Research. The state has two basic options for more money: taxes or tapping the state's $24.8 billion Permanent Fund.