Alaska editorials: Budget deficit inevitable

Posted: Monday, April 02, 2007

This editorial first appeared in The Fairbanks Daily News-Miner:

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Sen. Gary Wilken's soapbox has been reduced to the size of a matchbox as the result of his relegation to minority status in the state Senate, but the message he intends to send forth in the coming weeks hasn't diminished in scope one iota.

What the Fairbanks Republican senator is talking about, and has been talking about for a few years, is the unsustainability of the state budgets. In simple terms: Alaska isn't going to have the money it needs for the budgets it is likely to have. This notion may take Alaskans by surprise.

After all, didn't we all witness a great debate in Juneau last year about the nifty new oil tax that would bring the state millions more in oil revenue? And aren't oil prices sitting comfortably at levels that are nice and high? Yes and yes.

So Alaska must surely be financially safe, you say. No.

In fact, Alaska is looking at a slight budget shortfall as early as fiscal 2009, according to data from the Legislative Finance Division and presented as part of Sen. Wilken's continuing campaign of legislative and public awareness of the coming financial problem and of his own solution. Thereafter, Alaska is looking at an increasingly widening gap caused by a decline in oil production, even with the new tax system in place. The increasing size of the gap is also based on the assumption that state spending will increase 3 percent annually to account for inflation - and that's a generous calculation that does not factor in any population increases and any major expenditures like paying down the enormous retirement debt.

What to do?

Gov. Sarah Palin, for her part, has put forward a fiscal 2008 budget that is significantly smaller than the fiscal 2007 budget approved by the Legislature. Her budget is a recognition that Alaska can't have burgeoning budgets while it waits for revenue to roll in from a North Slope natural gas pipeline. She's on the right track with that kind of thinking, though there's a real question about whether the budget needs to be as stark as she has proposed. Fairbanks and other parts of the state still have needs.

Nonetheless, the facts about the future leave legislators with little choice but to listen to what Sen. Wilken, and others, are saying.

Legislators don't have to agree with Sen. Wilken's proposal, which would rely on the Constitutional Budget Reserve and the Permanent Fund Earnings Reserve to bridge the money gap until revenue from the natural gas pipeline starts rolling in in about fiscal 2016. But they do need to be responsible, recognize the reality of the situation - a reality that includes the recognition that the state can't cut its way out of the impending deficits - and come up with a solution.

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