Alaska is facing a budget shortfall of $2 billion to $3 billion next year, Senate President Gary Stevens told reporters Tuesday on the first day of the 26th Alaska Legislature.
Following years when legislators were flush with money to spend as oil prices soared, the possible shortfall is looming over this year's session.
"Do we reduce the operating budget? Do we use some of our savings? That's a very delicate issue," said Stevens, a Republican from Kodiak.
Rep. Beth Kerttula, D-Juneau, said that would likely be the most difficult issue facing legislators this session.
"That's going to be where we have the arguments this year," she said.
Kerttula is the Democratic leader in the House.
Oil prices rose every year for the last seven years, topping out at an average of more than $91 a barrel last year. Prices this year peaked at above $140, but closed at $32.26 Friday.
Stevens said the budget proposed by Gov. Sarah Palin in December "spends more than it brings in" at current prices, but he did not blame the governor for presenting a required budget based on official price forecasts.
Sen. Lyman Hoffman, D-Bethel, co-chair of the Senate Finance Committee, said if prices stay low, the Senate will protect the state budget by spending savings.
Hoffman is a member of the Senate Bi-Partisan Working Group, the coalition that controls the Senate and elected Stevens as President.
The Senate is "not going to go down and reduce the budget to the level of dollars that's anticipated" from oil revenues, Hoffman said.
The state has savings set aside for such shortfalls, including $7 billion in the Constitutional Budget Reserve that can be tapped by legislators.
"The question is, do we want to use that money or not," Kerttula said.
The operating budget this year will be tight, Hoffman said, but will still provide services Alaskans are accustomed to. Kerttula said she wants to make sure any cuts don't come from health care for children or care for the elderly.
"I don't want to take the cuts out of people who are struggling to begin with," she said.
One area where spending might be cut is the $100 million Renewable Energy Projects fund. While the fund was established and the money appropriated last year, a legislative committee must still review the 77 projects proposed by the Alaska Energy Authority.
Hoffman said the Legislature should continue to emphasize renewable energy, which can lower energy costs for residents.
Palin said last week that she maintained her support for renewable energy projects despite the falling price of oil, and Kerttula said she supported renewable projects as well.
The state's official price estimate for next fiscal year, beginning July 1, is set by the Department of Revenue's Fall Revenue Sources Book, published in December. At $74 a barrel, it is well above current market prices.
Stevens said the spring revenue forecast coming in a few months will provide additional information on which to base the budget.