Conference attendees seek sustainable future

FAIRBANKS — Alaska budget issues will likely dog the government for years, according to presentations and representatives from the three-day budget conference.

Alaska is facing a large gap between the amount of money it brings in and the amount of money it spends. Moreover, projections provided by the Alaska Department of Revenue show that while the price of oil has already rebounded and may continue to rebound headed into the future, it likely will not do so quickly enough to prevent that gap from demolishing the states’ reserves, according to a presentation by University of Alaska Anchorage professor of economics Gunnar Knapp.

“Alaska oil production is falling and our population is rising,” reads a slide in Knapp’s presentation. “It is hard for falling oil production to support most of state government for a growing population.”

For example, if state spending, estimated at about $5.3 billion, remains unchanged, Alaska depletes years of accumulated savings as early as 2019, assuming oil stays at $60 per barrel. However, if oil prices rebound above $120 per barrel, as projected by the Department of Revenue, reserves would be reduced, but could potentially continue the operation of the government through 2021.

A severe reduction in oil prices since 2012 — roughly 81 percent — has created a 2015 budget deficit that would total roughly $5,200 for every Alaskan. Oil prices account for 90 percent of the overall state budget.

Delegates to the conference, said the sole focus was on the budget itself, and how to overcome that gap, whether by the addition of sources of revenue, like an income or sales tax, or by stretching industry taxes commonly applied to oil to other industries, or by the reduction of expenditures, through cuts to programs.

The conference’s one-track focus contrasted sharply with the wide-ranging transition conference. Many delegates, like MY House director Michelle Overstreet, were also part of the transition process following the election of Gov. Bill Walker last fall. Part of the budget conference’s focus was simply getting all of the participants on the same page.

“There was a lot of debate and discussion of different aspects of how to balance the budget,” Overstreet said. “There was a lot of misinformation out there. I think a lot of people are afraid our permanent fund check is going away. That’s not the case.”

Legislators have floated a plan to tap the permanent fund earnings reserve to cover the balance, which drew a letter of protest from some lawmakers. The permanent fund is composed of two components: the principal amount, established by fees from oil leases paid after the completion of the Alaska pipeline; and the earnings reserve, roughly the money that principal earns from a series of investments. The immensely popular annual dividend checks paid out to Alaskans are based on a formula applied to the amount of return the principal earns. The principal amount can never be spent, but if the earnings reserve amount ever equals zero or a negative amount, no checks can be issued, according to the Alaska Permanent Fund Corporation website.

“What we looked at was the earnings reserve for the PFD, and so it wouldn’t affect our checks,” Overstreet said.

Instead, different groups first looked at different portions of the budget depending on where they were considered to be “stakeholders.” For example, Elizabeth Ripley, the executive director of the Mat-Su Health Foundation, was assigned to the medical stakeholder group, and they started out examining the healthcare portions of the budget. Then, stakeholders from various groups looked at each other’s projections, the idea being that an education stakeholder might see the healthcare portion of the budget differently, Ripley said.

Delegates struggled with cutting programs in a way that created a fair sharing of the burden, Ripley said.

On the final night of the conference, delegates played with an Excel spreadsheet essentially simulating the impacts of various budget maneuvers on the deficit. In particular, finding a way to tap into the North Slope natural gas reserves and constructing a pipeline is critical, Ripley said.

“For instance, we never really reached that place where our revenues match our spending without the gas pipeline,” she said.

“We could literally add the gas pipeline into the model or take it out,” she said. “Taking it out, we basically never reach that stabilization point.”

Valley representatives at the conference — billed by Gov. Walker as a discussion about what kind of future Alaskans want to pay for — were few. Nine of a total 158 invited delegates, or roughly 6 percent, were Valley residents. By way of comparison, Mat-Su accounts for about 12 percent of the overall state population.

Contact Brian O’Connor at 352-2269, brian.oconnor@frontiersman.com, or on Twitter @reporterbriano.