State expected to use more from savings account than previously thought

Posted: Sunday, December 09, 2001

JUNEAU (AP) -- Alaska will need to draw $906 million from its dwindling savings account to balance the state budget this year, the Revenue Department now estimates.

The shortfall -- about $280 million beyond what was previously expected -- means the state's $2.3 billion Constitutional Budget Reserve will be depleted by July 2004 if current trends continue.

''Our forecast says we are out of money in two and a half years. It's almost a year sooner than we said in our earlier forecast,'' said Larry Persily, the deputy revenue commissioner.

The department's fall revenue forecast, released Friday, shows the state expects oil prices to remain relatively flat at about $19 a barrel for the next couple of years. The price of Alaska crude on the West Coast closed at $16.49 Friday.

Oil revenues now pay for about 77 percent of the state's $2.4 billion general fund budget. Those revenues are expected to total $1.15 billion in the next fiscal year and $1.07 billion the following year.

Revenue officials are projecting the state's inflow will fall short by $906.3 million this year and by $1.13 billion in fiscal 2003.

The projections are based on modest growth in the state's budget for general services. Gov. Tony Knowles has proposed spending $100 million more on anti-terrorism initiatives in the next fiscal year, and Friday he called for $17 million in added spending for the University of Alaska.

Revenue Commissioner Wilson Condon said the shortfall illustrates the need for state lawmakers to find additional revenue.

The department expects oil prices to average $20.55 for the current fiscal year, which ends June 30. That's a drop of $2 from the state's spring 2001 forecast and $4 from its fall 2000 forecast.

Oil prices are now expected to be between $18.81 and $19.72 over the next two years. The department predicts production will average 1.01 million barrels a day in fiscal 2002 and remain above that mark through 2008.

Average daily oil production from the North Slope fell below 1 million barrels in fiscal 2001 for the first time in 24 years.

While the oil flow is stabilizing, revenue officials are projecting declining oil revenues in future years as more oil is drawn from newer fields that pay lower taxes.

If OPEC is successful in tightening supply, prices would rise in the coming years, the department said. But even a sustained average of $25.50 per barrel would only extend the life of the state's savings account by about 18 months, said Condon.

''Higher or lower oil prices could move the end date into 2005 or 2003, but realistically, we know we're getting dangerously close to the end of the line,'' Condon said in a statement.

For years, Alaska's state budget has ridden the waves of the oil markets. Voters created the Constitutional Budget Reserve in 1990 as a shock absorber to protect state services.

Money from settling back oil tax cases was put into the fund, which also has been bolstered by interest.

Since its creation, the state has used $4 billion from the reserve account to make up budget shortfalls.

But the declining balance of that fund and the near certainty of falling oil revenues has sparked debate among lawmakers about diversifying the state's revenue stream.

A group of 24 lawmakers meeting over the summer to consider closing the state's ''fiscal gap'' have floated a plan to generate $1 billion in new revenues annually by fiscal 2004.

The plan would impose a 3 percent income tax and a 2 percent sales tax to raise $460 million a year. The plan would cap Permanent Fund dividends at $1,250 for every Alaskan.

It would also impose a $25 head tax on cruise ship passengers and raise oil and gas taxes by $100 million. Additional money would be collected through a school head tax and increased levies on alcohol and gasoline.

Permanent Fund earnings could also be used to close the gap between income and spending.

Lawmakers within the Fiscal Policy Caucus have called the plan a starting point for debate when the Legislature returns to work in January. But it has already drawn a cool reception from Senate President Rick Halford, R-Chugiak, who opposes limiting Permanent Fund dividends.


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