Wondering why the University of Alaska is implementing budget cuts? Remember the Legislature's drawn-out efforts to pass a state budget? Tracking what's happening in the oil industry? Looking at house prices in Anchorage? If you answered "Yes" to any of these questions, you are warmed up for even more fiscal and economic questions. You could also win a free lunch at the Forum on Alaska's Fiscal and Economic Future set for Saturday, Sept. 19, at the Wendy Williamson Auditorium at the University of Alaska Anchorage from 9 a.m. to 4 p.m.
1. At the current rates of spending and projected revenues under current law, when does the Alaska Legislative Finance Division project that the state of Alaska will run out of savings outside of the Permanent Fund?
2. At current oil prices, what is the size of the annual deficit during this fiscal year (July 1, 2015-June 30, 2016) per Alaskan (that's every man, woman, and child in the state)?
3. What percentage of state employees would need to be laid off to balance the state budget during the current fiscal year (July 1, 2015-June 30, 2016)?
4. At currently projected oil production levels, what price of oil did Gov. Bill Walker identify in July of 2015 as the price needed for the state of Alaska to balance its budget?
5. What have prices for Alaska North Slope crude oil been since July 1, 2015?
6. Recent trading in contracts for crude oil in September of 2020 imply that oil prices will then be:
7. At currently projected oil price levels, what daily oil production level did Gov. Bill Walker identify in July of 2015 as the level the state of Alaska needs to balance its budget?
8. What has Alaska North Slope oil production been since July 1, 2015?
9. What year did the CEO of Royal Dutch Shell ("Shell") identify in July of 2015 as the year that Shell plans to start offshore oil production in Alaska?
10. What is the earliest year that the Alaska Department of Revenue has projected in a public document that revenues could come to the state of Alaska from the operation of the Alaska Liquefied Natural Gas project (also known variously as "AKLNG," "the big gasline," or "the gasline")?
11. When the multiplier effect is included, how many jobs did the University of Alaska Anchorage's Institute of Social and Economic Research (ISER) estimate in February of 2015 that a $1 billion cut to the state of Alaska's budget would cause to be lost in the Alaska economy?
ANSWERS TO FIRST QUIZ:
1. b (Fiscal Year 2018 (July 1, 2017-June 30, 2018): Personal communication from David Teal, Director, Alaska Legislative Finance Division, August 10, 2015)
2. d ($4,479: Calculation based on personal communication of estimate of $3.3 billion deficit at current oil prices from Teal, Aug. 24, 2015; and U.S. Census Bureau estimate of 736,732 for Alaska population in 2014)
3. d (This number does not exist, as laying off every state employee would not balance the budget -- the explanation is that spending on items other than compensation for state employees exceeds the projections for state's Unrestricted General Fund revenues for fiscal year 2016 (July 1, 2015-June 30, 2016)): Personal communication from Teal, Aug. 24, 2015)
4. c ($109 per barrel: Gov. Bill Walker, presentation to the Anchorage Economic Development Corporation, July 29, 2015)
5. b (between $45 and $62 per barrel: Alaska Department of Revenue website accessed Aug. 23, 2015)
6. b (between $45 and $75 per barrel: CME Group website accessed August 23, 2015; note that these are futures for West Texas Intermediate (WTI) crude, which has recently been running $4-$7 less a barrel than Alaska North Slope crude)
7. d (1.6 million barrels per day: Gov. Bill Walker, presentation to the Anchorage Economic Development Corporation, July 29, 2015)
8. a (380,000 barrels to 490,000 barrels per day: Figures for Alaska North Slope production from Alaska Department of Revenue website accessed Aug. 23, 2015; figures for Alaska oil production outside of Alaska North Slope not yet available for periods starting July 1, 2015, but in recent years Alaska North Slope oil production has been more than 95 percent of total Alaska oil production)
9. d (2030: Associated Press report by Danica Kirka, "Shell axes 6,500 jobs worldwide to cope with long period of cheap oil," July 30, 2015, available online: "Looking into the future, Shell is betting on offshore oil fields in Alaska, which (Shell CEO Ben) van Beurden described as having the potential to produce more energy than the biggest projects in the Gulf of Mexico. The company has committed resources to develop the long-term potential of the fields over the next two years and plans to start production in 2030, van Beurden said at a news conference.")
10. c (2024: Michael Pawlowski, Deputy Commissioner of Alaska Department of Revenue, "Alaska LNG: Fiscal Implications and Potential Cash Flows," October 4, 2014, posted online at www.akcommonground.org.)
11. c (9,000: Memorandum from Gunnar Knapp, Director of ISER, to State Rep. Mark Neuman, "Preliminary analysis of impacts of budget cuts on Alaska's economy," February 2, 2015. This memorandum also states that "State spending could have major indirect effects on the economy in other ways that the economic impact estimates shown above don't capture at all. For example, cuts could affect economic confidence, investment, and real estate prices." (Emphasis in original.)
So now you have learned that it would take roughly a doubling of oil prices or roughly a tripling of oil production to balance the budget this year (using the conventional definition of the budget as the Unrestricted General Fund). You have also learned that frequently discussed development possibilities seem unlikely to save us from hitting the wall and that Alaskans need to think seriously about the future direction of the economy. So what do you do now? You take the Bonus Quiz, because the possibility of prizes could cheer you up.
BONUS QUIZ (with prizes)
1. What are the estimates released by the Anchorage Economic Development Corporation in August of 2015 for the population of Anchorage in 2016 and 2017?
2. How much marijuana taxed under state law would each Alaska adult have to buy in a year to fill the budget deficit this fiscal year given this year's budget?
3. Which Alaskan said this, and in what year?
"As long as the price of oil continues to stay in the mid-20's or above, things are going to go pretty well. If we stay at $25 or $26 or have some spikes … it quickly infuses the system."
The first three people giving the correct answers to the bonus quiz to the author at firstname.lastname@example.org before Thurs., Sept. 17, at 5 p.m. get a free lunch at the Forum on Alaska's Fiscal and Economic Future set for Saturday, Sept. 19, at the University of Alaska Anchorage's Wendy Williamson Auditorium from 9 a.m. to 4 p.m. Alaska Common Ground and ISER are presenting this free public forum with the aid of other organizations.
Even if you don't get a free lunch, you should consider attending this event on Sept. 19, which will be unusual in multiple ways. One way is that citizens will be putting forth comprehensive, clear, and specific proposals to address the actual scale of the state's fiscal challenge based on the actual range of options available to the state. Visually striking tools will aid the citizens in showing the elements of Alaska's fiscal system. This event will also feature (1) policymakers and expert commentators discussing the institutional and political factors in addressing the fiscal challenge and (2) a compelling one-on-one debate on the future of Alaska's economy and the fiscal choices that could affect our economic future.
Cliff Groh is chair of Alaska Common Ground. He was the principal legislative assistant working on the legislation adopted in 1982 that created the Permanent Fund dividend we have today and the Special Assistant to the Alaska Commissioner of Revenue in 1989 during the consideration and adoption of the legislation revising the oil severance (production) tax's Economic Limit Factor (ELF).
Correction: Upon first publication, the answer listed for question No. 4 incorrectly labeled the correct answer as "b," but then gave the correct figure contained in answer "c." The figure was correct as written and has not been corrected, but the answer letter has been fixed.
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(at)alaskadispatch.com.