Alaska's lawmakers Sunday answered the question they wouldn't answer all session: Where will the money to run state government come from if it doesn't come from oil taxes?
The Alaska House and Senate both finalized a billion-dollar-a-year reduction in oil taxes and approved budgets that immediately put the state into deficit spending. They adjourned the 90-day legislative session shortly before midnight, hoping their risky decision will prompt oil companies to step up investment in the aging North Slope oil patch.
As Alaskans wait to see what happens, the state for now will have to rely on slimmer budgets and savings to make ends meet.
The state has billions in savings accounts of varying degrees of accessibility, with the largest available being the Constitutional Budget Reserve. That fund takes a super majority to dip into, but there are additional billions in more readily accessible funds.
The draw next year will probably be in the several hundreds of millions of dollars legislators said, with the final amount depending on next year's oil prices, oil production and any unanticipated expenses.
"We know we're going to have a couple of bad years ahead of us," said Steve Thompson, R-Fairbanks, a member of the Senate Finance Committee and a supporter of oil-tax cutting Senate Bill 21.
After saying all session that they planned to cut spending, all legislators managed was to hold the operating budget about even at about $9.9 billion and roll back the flush capital budgets of recent years to about $2.2 billion.
Following the conclusion of the session, Senate and House Republicans each held press conferences to congratulate themselves for reducing spending growth and cutting taxes, with Senate President Charlie Huggins saying they'd done "fabulous" work. Gov. Sean Parnell, who had kept a low profile during the oil tax debate, walked the halls of the Capitol after midnight, mingling with giddy and exhausted legislators.
Some legislators, though, warned the spending cuts and tax cuts weren't enough.
"I believe that we should be tightening our belts more" in anticipation of future revenue cuts, said Rep. Shelley Hughes, R-Palmer.
Sen. Pete Kelly, R-Fairbanks, co-chair of the Senate Finance Committee, called the goal of holding the budgets a significant accomplishment after years of growth. "You've got to slow the ship before you can turn it around," he said.
The Legislature followed its oil tax cut early in the day with passage of a bill to cut corporate income taxes. That action, at the tax's lowest levels, will result in another $5 million in lost revenue. That was too much for Rep. Alan Austerman, R-Kodiak, following on the heels of the oil tax cut.
"The state can't continue to deprive ourselves of income when we know we're going to be in the red for the next couple of years," he said.
Many legislators said they believed the tax revenue loss will be a short-term event and will turn around when new oil begins flowing.
"The sky is not falling. We have healthy savings accounts," said Rep. Anna Fairclough, R-Eagle River. "There's a reason why we have saved."
Legislators who had pushed hard for the oil tax cut were brimming with confidence that it would eventually bring in more revenue than what was being lost, but they couldn't promise that because there are no performance guarantees requiring companies to increase investment and oil production. "It's going to take several years, that was very clear," said Lance Pruitt, R-Anchorage, and House Majority leader.
He declined to say what would happen if his prediction didn't come true. "We're going to be in deficit spending if we don't do anything," he said. "We had to take a chance."
Years of big tax revenues -- ironically brought in by the current oil tax structure that the Republican leadership loathed -- may enable years of deficit spending. Attempts by Democrats to protect money in the Alaska Permanent Fund have failed.
But Sen. Johnny Ellis, D-Anchorage, warned that the oil tax cut will take badly needed money from the state and was unlikely to produce the result proponents want. "It may drive us to disaster," he said.
Senate supporters of the oil tax cut said they were confident the tax cut would produce an increase in revenue, with Sen. Pete Kelly predicting that it might happen in 2016 or 2017.
Huggins warned that factors such as oil prices or difficulties in mobilizing drilling rigs make it difficult to predict when the tax cuts will result in more revenue coming into the state.
"It will happen," Huggins said. "If we could tell you a month or day or year, we'd be in the oil-forecasting business."
Spending money out of savings can balance budgets for several years, said Sen. Hollis French, D-Anchorage, who opposed Senate Bill 21. After that, other revenue sources will likely be sought, and he doesn't like what they may be.
"I'm very concerned that this bill may bankrupt the state, and lead to an income tax and the loss of the PFD," he said.
Previous attempts to use the earnings of the Alaska Permanent Fund to fund state government instead of paying dividends have been rejected by voters. The state income tax was repealed in the early 1980s, a few years after the trans-Alaska pipeline began shipping oil.
Contact Pat Forgey at pat(at)alaskadispatch.com