With the state already in deficit spending and predicting a surprise $2 billion drop in oil income this fiscal year, how long before Alaska's leaders gut the state's massive savings?
Might not be long.
The Parnell administration said the state's two big piggy banks -- flush with $17.4 billion -- could vanish in as soon as five years if oil prices drop to $70 a barrel and budgets rise 6 percent yearly, according to the state's recently released fall revenue forecast.
Or perhaps the savings -- which doesn't include the $48 billion Permanent Fund -- will last as long as 11 years. That's if oil prices register at $105 a barrel and higher, as the state predicts, and budgets shrink yearly by 4 percent after fiscal year 2015, the forecast said.
Democrats, meanwhile, say Gov. Sean Parnell will zero out the savings in five years. The Alaska Democratic Party on Wednesday pointed to a report from the Legislative Finance Division released in August. They say it forecasts a $1 billion deficit for the current fiscal year, which will end June 30. But that was before the release of the fall revenue forecast that contains the unexpected plunge in oil income.
“It's clearly going to be more than $1 billion,” said Zack Fields, Alaska Democratic Party spokesman. “Is it it going to be $2 billion, $3 billion?”
Whatever happens, there will be pain. Can Parnell turn things around? Alaskans might get an inkling Thursday at noon, when he unveils his fifth proposed budget -- covering the 2015 fiscal year starting in July.
Parnell has said recently he’ll propose sharp reductions in spending. If he follows through, it would be a stark reversal of fortunes for a state that not long ago enjoyed multibillion-dollar surpluses thanks to the oil-tax hike passed in 2007.
Democrats blame the sudden turnaround on the oil tax cut, initiated by Parnell, that's set to replace the tax hike on Jan. 1. The Parnell Administration has said the cut isn't to blame. Instead, administrators fault sagging oil production and lower-than-expected oil prices, as well as increases in nontaxable expenses by oil companies.
The state's budget seems to have spiraled out of control in a matter of months. In May, state analysts predicted that in fiscal year 2013 the budget would come up short for the first time in years. They said the state would see a deficit of $384 million by the end of the fiscal year, which arrived on June 30.
But things have changed, as explained by the fall revenue forecast. “We anticipate it being more,” John Boucher, senior analyst at the Office of Management and Budget, said on Wednesday.
How much more? He wouldn't say. The final, audited numbers for the last fiscal year weren't yet ready for release. That would happen soon, he said.
The 2013 and 2014 deficits could be just the beginning of Alaska’s financial woes, what with the revenue forecast predicting that overall production from North Slope fields will continue to dwindle for years to come.
To close annual shortfalls, the Statutory Budget Reserve will be depleted first, said the state’s revenue forecast. At September’s end, that savings account contained $5.5 billion.
The $11.9 billion Constitutional Budget Reserve is harder to access, so it will be tapped next, the fall forecast says.
But the Constitutional Budget Reserve -- tapping it requires at least a three-fourths majority in each legislative body -- could soon contain $3 billion less. Parnell recently announced he wants to move $3 billion of the reserve into the state’s retirement trust funds, which would reduce the state’s unfunded liability and reduce fixed annual debt payments.
The idea is widely supported, but the transfer will hasten the demise of the savings account. Add up that transfer and the shortfalls, and the state's $17.4 billion savings could suddenly be $4 billion poorer next year -- or more.
That might leave Parnell feeling like he has just one option on Thursday: Cut, baby, cut.
Contact Alex DeMarban at alex(at)alaskadispatch.com.