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Oil price drop erases budget cuts, but legislators still call for cutting

  • Author: Charles Wohlforth
    | Opinion
  • Updated: July 1, 2016
  • Published December 12, 2015

Remember the bitter conflict and torturous special sessions of the Legislature over cutting the operating budget this year? Those cuts have already been erased by the most recent dip in oil prices.

The cuts were not small. Nine percent. In total, general fund spending has been cut 34 percent since 2013 and hasn't been as low since 2006 when adjusted for population and inflation.

But budget cuts don't mean much in the face of a crisis of this magnitude.

Alaska's oil revenue has declined by 88 percent from fiscal year 2012 to this year. Imagine reducing your primary source of income by 88 percent. You wouldn't be thinking, "I guess we can't eat out this week." You would be thinking, "I had better get a new source of income or I will be living on the street."

Those who don't know how bad the problem is can be excused for thinking we should take another year or two to cut spending before considering taxes. But most people who learn the facts agree we need to take action now.

Legislators, on the other hand, are supposed to know what's going on. Members of the Legislature who say, "Cut the budget first," are either incompetent or cynically self-serving or both. In a lot of cases, probably both.

I will back up that last statement later, but first let me see if I can prove the earlier statement, that if you know the situation, you will probably be ready for the state to find more revenue right now. These numbers come from Gunnar Knapp, director of the Institute of Social and Economic Research at the University of Alaska Anchorage.

Alaska spends $5.2 billion annually and takes in $1 billion from oil. All other sources bring in half a billion. That leaves a deficit of 69 percent of the budget, more than $3.6 billion a year. By July, the savings account that has covered the deficit will be down to $6.7 billion, meaning we will be out of business after two years.

(This all leaves aside federal spending that passes through the state government. The federal government pays for transportation, health, education -- in total, the federal government now provides the Alaska treasury three times more money than oil does. But that money is off limits, because its purpose is set by Congress.)

Maybe oil prices will rise, although that would probably take a long-lasting war that stops supply from many countries or an event of similar magnitude and duration. To make budget cutting a solution for Alaska, oil prices would have to go to historic highs and then continue going up for the foreseeable future.

That's because we're running out of oil. The Alaska Department of Revenue's fall projection shows oil production going down by 40 percent over the next decade, to 300,000 barrels a day in 2025. A gas line or other windfall project will take at least that long to come on line.

The department predicts oil prices rising, but because of the production decline, oil revenue would increase only slightly in the next 10 years.

"When I saw this graph, it made me want to cry," Knapp told a committee of Commonwealth North on Thursday.

In 500 words I've now laid out the facts about why cutting the budget won't solve the problem. Maybe some readers would be OK with 70 percent cuts to schools, health, roads, public safety and everything else. But I'm guessing most would not.

Gov. Bill Walker's proposed financial plan shows seriousness and a willingness to take risks as a leader. It isn't perfect. It is too complicated. But it has the most important virtues: It is essentially fair, asking everyone to give, and it works for the present and the long term.

I don't want to give up part of my Permanent Fund dividend or pay taxes. But I can understand numbers. Each Alaskan's share of the deficit is $4,900. We could give up the entire dividend and cover less than half of that. Our only solution is to use every tool we have, including budget cuts, the Permanent Fund and taxes. Everyone has to give.

But the Legislature's Republican leadership doesn't have a plan. It hasn't even started talking about one. Leadership members are still saying, "Cut the budget first." Sen. Pete Kelly of Fairbanks and Rep. Lynn Gattis of Wasilla joked about Walker's plan in their public reactions, Kelly saying he was trying to think of a pithy comeback and Gattis suggesting the governor was smoking marijuana.

Legislators have frankly said why they are responding this way. It is an election year. To put that more clearly, they won't address the most serious crisis ever to face the state, because they care more about $50,400 salaries and prestige for narcissistic egos. Many could never hope for jobs like this in the private sector. They're not qualified.

Maybe the problem is competence. Senate President Kevin Meyer's reaction to Walker's plan was that the Legislature wouldn't have enough time to work on it.

There is no time, because legislators said they had to cut before studying revenues. I stopped accepting this excuse from my teenagers before they hit high school. When did you get this assignment? Was anyone unaware that Alaska was running out of oil money?

The problem is clear. The need for action is urgent so that changes can be implemented before savings run out.

But this is not a financial crisis. It is a political crisis. Walker has presented a plan that works.

Our best hope is that the business community can turn the screws on legislators who care only about self-interest and force them to act. And after that, let's think about choosing people to represent us who appeal to qualities other than selfishness.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com.

Charles Wohlforth's column appears three times weekly. A lifelong Alaskan, he is the author of more than 10 books. Follow him on Facebook or email cwohlforth@alaskadispatch.com.

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