Alaska Editorial: Don't let oil prices reduce fiscal caution

Posted: Thursday, March 18, 2004

This editorial appeared in the March 9 Fairbanks Daily News-Miner:

Back in June, this newspaper encouraged Alaskans to look beyond the summer's high price of oil and to act responsibly in supporting much-needed change in how the state government acquires revenue to pay for the services it provides.

The price of a barrel of North Slope crude had reached $30, about $5 higher than the forecast at the time. The extra $5, if it were to hold up for the entire 2004-05 fiscal year, would amount to an extra $325 million for the state.

Oil has continued its high flying, staying at or close to $30 for all of 2003 and moving into the $35 to $37 range for the past three weeks. Prices have floated in the clouds for so long in part because the world's oil supplies are tight and because two major oil-producing nations - Venezuela and Iraq - are in turmoil.

The lofty price and the millions it can mean for Alaska are enough to intoxicate legislators and the public. But they form a drink neither should take.

Alaskans should look past the high prices for two reasons. First, oil is a volatile commodity and its price can tumble as fast as it rises. Second, if the high price does show some duration, Alaskans should take the opportunity to make fiscal changes now and thereby avoid pains such as those of last year, which saw the governor veto millions from the state budget.

History says the price of oil will fall. Will Alaskans let history also repeat itself by squelching any desire to revise the state's method of raising money and thereby put an end to the persistent annual budget gaps?

High oil prices certainly are good for Alaska. But putting an end to the budget shortfalls requires a look broader in scope than what can be expected from the price of oil.

The choices can be arranged in a few ways but, in general, include using earnings of the Alaska Permanent Fund, imposing some sort of broad-based tax, instituting some specialty taxes and fees, and perhaps making further cuts to state services.

Additional revenue from new resource development, mostly from the oil and gas sector, is not expected for years - but continued high oil prices, in combination with use of the permanent fund and other measures, might help the state's leaders preserve the main budget reserve account long enough for new oil revenue to arrive.

Those are hard choices that must be made without too much emphasis put on the present level of oil prices. Alaskans would do well to look upon these high prices only as a gift that can be quickly taken away.

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