Alaska editorial: State budget deficit could return in 2008

Posted: Sunday, February 25, 2007

This editorial appeared in the Anchorage Daily News:

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There is a difference between Chicken Little and those who have warned for years about the impending state fiscal gap. Chicken Little was wrong; the sky can't fall down. Predictors of a looming budget gap eventually will be proven right; state oil revenues cannot sustain public spending forever.

The fiscal gap will be back. And maybe sooner rather than later. Perhaps as soon as the fiscal year that starts July 1, 2008.

Like it or not, Alaskans will need to find new revenues years before any North Slope natural gas pipeline can make us all rich again.

Oil production is falling, not rising. Alaskans will need to talk about using the budget reserve fund, Permanent Fund earnings, even taxes - or be ready to give up many of the state-supported services long enjoyed for free.

David Teal, the chief fiscal adviser to state legislators, warned lawmakers recently that despite high oil prices and despite higher oil taxes, the state could be just a year or so away from a budget deficit.

"Sobering," is how Juneau Sen. Kim Elton described the news.

That's the thing about drinking too much from the cup of oil revenues. Eventually, the cup runs dry and you have little choice but to sober up.

Mr. Teal, director of the Legislative Finance Division, listed the facts for lawmakers:

• The half a billion additional dollars in next year's budget for higher state, municipal and school district retirement costs are not one-time expenses. Catch-up contributions will need to be made the following year and for many years to come. Those expenses will be a permanent part of the budget for the foreseeable future.

• Medicaid costs continue to climb, and the federal share of Medicaid is scheduled to drop this fall - putting an even heavier burden on the state treasury.

• The governor has promised to restore the Longevity Bonus program, handing out money to Alaska's senior citizens, and to help with state assistance to municipalities. Just those two politically popular programs alone are likely to add $80 million to state spending next year.

Meanwhile, the governor's proposals to eliminate the state tax on car and truck tires and reduce business license fees will take several million dollars a year out of the state treasury.

Add to that the indisputable fact that most Alaskans want the state to spend more on education, not less. And more on roads, not less. And more on police and prisons too.

Add shrinking oil prices to the equation - down more than $20 a barrel since last summer's record highs. And add shrinking oil production - running at 730,000 barrels a day this fiscal year, down from 845,000 barrels last year.

It adds up to less revenue at the same time as more demands for state funding, and the likelihood that Alaskans will soon be talking about the fiscal gap - memories of the 1990s.

But it's not all bad. Alaska has $2.4 billion in its budget reserve fund. It has $37.5 billion in the Permanent Fund. It has a population that has never paid a state sales tax and has not paid a state income tax since it was eliminated in 1980.

And as long as 670,000 Alaskans and their elected officials don't ignore the issue, there is plenty of time to make the right spending and revenue decisions.

Alaska needs leadership, not promises that can't come true.



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