Dunleavy Administration Inherits a $1.6 Billion Deficit; Releases Proposed State BudgetBy MARY KAUFFMAN
December 14, 2018
The Dunleavy administration submitted the Walker administration’s proposed $11.5 billion FY2020 budget today simply to meet the statutory deadline and, to demonstrate its ongoing commitment to be honest with Alaskans about the state’s budget shortfall. Quoting a news release, the root of the problem with the Walker administration’s budget lies in a single number – its unrealistic projection that oil will sell for $75 dollars per barrel between July 2019 and June 2020. “The Dunleavy administration is all about truth in budgeting,” said Alaska Department of Revenue Commissioner Bruce Tangeman. “We performed a thorough analysis of the revenue estimates submitted by the previous administration and, it became clear it did not represent the true size of the budget deficit.” Quoting a news release, Governor Dunleavy's budget uses a more realistic oil price forecast of $64 dollars per barrel, which balloons the deficit to $1.6 billion dollars after earnings from the Permanent Fund are used to pay for government services and dividends. That figure will be the starting point for vigorous discussions with state agencies, legislators and the public. The Walker $11.5 billion-dollar spending plan is unsustainable and leaves substantial room for spending reductions and budgetary reforms that reflect the state’s current fiscal situation. The fall forecast is the revenue department’s first revenue forecast following passage of SB 26, which established a protocol for transferring a portion of the earnings of the Permanent Fund to the general fund each year. The department is presenting the estimated Permanent Fund transfer as unrestricted revenue beginning in FY 2019. Under this structure, this Permanent Fund transfer will fund both the Permanent Fund Dividend as well as general government operations. General fund unrestricted revenues totaled $2.4 billion in FY 2018. Not counting the Permanent Fund transfer, the department is forecasting unrestricted revenue of $2.8 billion for FY 2019 and $2.3 billion for FY 2020. Under SB 26, the percent of market value to be transferred from the Permanent Fund to the general fund is calculated to be $2.7 billion in FY 2019 and $2.9 billion in FY 2020. Alaska North Slope oil prices are forecast to average $67.96 per barrel for FY 2019 and $64.00 for FY 2020. In recent weeks oil prices have trended downward with ANS oil prices closing below $60.00 per barrel in late November 2018. Currently, ANS price is trending in the mid to low-$60 range, in stark contrast to the multi-year high price of over $85.00 per barrel at the beginning of October 2018. This forecast accounts for these recent swings in price. For FY 2018, North Slope oil production averaged 518,400 barrels per day, a decline of 1.5% compared to FY 2017. The department forecasts that new fields will help increase production to 526,800 barrels per day in FY 2019 and 533,200 barrels per day in FY 2020 before entering a period of declining production through FY 2024. Production is expected to remain around 500,000 barrels per day over the next decade, as new developments help offset most of the declines from existing fields. In the weeks ahead, the Dunleavy administration will revise the budget it submitted today to reign in state spending and prioritize the core services and programs that really matter to Alaskans. “All items of state expenditures are on the table,” said Office of Management and Budget Director Donna Arduin. Director Arduin went on to say, “The state must learn to live within its means and we get there by making the tough spending choices.” According to Dunleavy's administration, the revised budget will be predictable, sustainable and realistic. Alaska Senator Donny Olson (D-Golovin) and Senator Bill Wielechowski (D-Anchorage), both incoming members of Senate Finance for the 31st Alaska Legislature, released the following statements on the proposed budget: Senator Olson said, "It really made an impact on my constituents when Governor Dunleavy promised back payment of three years of cut dividends during the campaign. People in rural Alaska depend on the Dividend for the high costs of transportation, food, and energy. I am glad to see that Governor Dunleavy is going forward with a full 2019 Dividend and hope to work with him to figure out a process to pay back three years of reduced dividends." Senator Wielechowski said, "I am pleased to see Governor Dunleavy is following the historic statutory formula to fund a full 2019 Permanent Fund Dividend. I anticipate the governor working towards fully repaying past dividends as promised from his campaign. Unfortunately, Alaska's deficit will increase to $1.6 billion under his budget, mostly because of a drop in oil prices and no significant increase in oil production next year. The state is still losing over $1.2 billion a year in per barrel oil tax credits that were supposed to boost production. This government program is clearly not working as oil production is still projected to decline. It is time to eliminate this oil tax credit to close our budget gap, instead of forcing working Alaskan families to shoulder the burden of balancing the budget." Alaska Department of Revenue (DOR) Commissioner Bruce Tangeman also released the Fall 2018 Revenue Sources Book today. The Revenue Sources Book includes the Department’s fall forecast of oil price, oil production, and state revenue. The Revenue Sources Book is an annual publication that provides basic information about state revenue, as well as a forecast of state revenue over the next ten years. The Revenue Sources Book was made available December 14, 2018 at 3:00pm on the Department’s website, at www.tax.alaska.gov.
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