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Pressed by coronavirus and falling oil prices, Alaska is running out of available cash

JUNEAU — Opening a legislative meeting Saturday morning, Sen. Natasha von Imhof began with a grim monologue.

“Alaska is experiencing a perfect storm. A most terrible trifecta. The hat trick from hell. We are being hit on all sides with the stock market crash, oil prices plummeting, and the tourism and fishing season all but idle,” she said.

That “hat trick from hell” is presenting Alaska with a Wayne Gretzky-sized budget problem: The state’s vast savings accounts are finally running dry.

In the fiscal year that starts July 1, Gov. Mike Dunleavy and legislators are proposing to spend almost $8.5 billion in state money.

In that year, the state is expected to receive about $4.4 billion in revenue — and that estimate is based on a year of oil at $39 per barrel. For every dollar that oil falls in value, the state loses $30 million in revenue. On Thursday, North Slope oil was $26.60 per barrel.

The state’s Constitutional Budget Reserve is expected to contain about $1.5 billion by July 1.

That won’t be enough to cover the gap on its own.

State lawmakers are entering the final stages of work on the state budget, but they face a key problem. How do they pay for it?

The value of the Alaska Permanent Fund was $58.7 billion on March 16, but most of that money cannot be spent. Only the $16.1 billion earnings reserve, an account that collects the Permanent Fund’s investment earnings, can be spent by the Legislature and governor.

Most of that money has already been committed, however. By July 2, only about $5.5 billion will be available, and that figure is extremely speculative because it’s based on investment losses and gains as of March 16. If markets drop further, that figure will shrink.

That speculative $5.5 billion would be enough to cover all the spending proposed by the governor and legislators, but there is a major drawback.

In 2018, the Legislature capped how much it can spend each year from the earnings reserve. While lawmakers can bypass the cap, the reserve has a greater chance of entirely running out of available money if they do so.

On June 30, 2019, the Permanent Fund’s earnings reserve contained $18.4 billion available for spending. By July 2, 2020, it may only have $5.5 billion available. Here’s where the money went:

Even if the earnings reserve doesn’t run entirely dry, spending money from the Permanent Fund now means less money for the fund to invest and less money available in the future.

For that reason, a majority of lawmakers are skeptical of Dunleavy’s proposal to spend $2 billion on a $3,200 Permanent Fund dividend and another $815 million on a supplemental $1,306 payment.

“We’re going to be very judicious about the CBR and how much dividend we can afford,” said Sen. Bert Stedman, R-Sitka.

If no dividend were paid, projected spending for the next fiscal year would drop to levels that could be covered without extra spending from the Permanent Fund’s earnings reserve.

But Dunleavy’s plan has supporters in the Legislature, particularly among the members of the House’s Republican minority.

That minority has been willing to leverage its limited political power in support of a larger dividend or lower spending on state services. Last week, to preserve its leverage, the minority blocked passage of a $360 million spending bill that included $23.5 million in anti-coronavirus funding.

In recent weeks, members have grown more vocal about the need for larger cash payments to Alaskans in order to offset the impending recession caused by the need to shut down businesses amid the pandemic.

That debate is expected to reach a climax in the coming week, but no one — not the legislators involved, not the governor — knows the final outcome.

For all the problems lawmakers have this year, money is available if the Legislature and governor are willing to accept the consequences. Next year, that won’t be the case.

“This is a tough budget, and the next one’s going to be tougher,” Stedman said.

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