Drop in oil prices widens state budget gap by millions

Draw on the budget reserve could be $460 million

Posted: Friday, April 11, 2003

Gov. Frank Murkowski's target for reducing the state's fiscal gap won't hit the mark this year unless he finds another $67 million in cuts and new income, according to the state Department of Revenue.

The department released its spring revenue forecast based on a lower price of oil Thursday, projecting the draw on the Constitutional Budget Reserve, an account used to balance the budget in recent years, would be about $460 million. That number constitutes that state's fiscal gap for this budget year.

Murkowski's budget plan released in March aimed to reduce the draw on the CBR to $393 million. The new revenue forecast leaves a gap of $67 million between Murkowski's plan and the department's projections.

"This forecast for the Constitutional Budget Reserve assumes that the governor's operating budget that he proposed to the Legislature will be adopted, that the one-time increase in revenues of $120 million will be adopted and that the $120 million of reoccurring revenue increases proposed by the governor will also be adopted," said Bill Corbus, commissioner of the Department of Revenue.

The $120 million in one-time revenues represents the transfer of money from the closure of the Alaska Science and Technology Foundation and interest on the Anchorage-Kenai electrical intertie grant to the state general fund, which is used to pay for government operations.

The other $120 million comes from taxes and user fees proposed in the governor's budget, raising more revenue from charitable gaming, wildlife viewing, motor-fuel and studded-tire sales and vehicle registration.

The Legislature has not passed any of Murkowski's tax and user fee proposals, nor has it agreed to shut down the science and technology foundation.

Corbus recommended the administration review all government programs for potential cuts to reduce the CBR draw back to $393 million.

"The Murkowski administration is leaving no stone unturned as we're going to find a way to reduce that gap down to the $393 million level," Corbus said.

The Department of Revenue's projections show the $1.9 billion CBR will be used up by July 2006 if the price of oil follows the department's estimates. Oil revenues contribute the lion's share of the state's general fund budget.

Corbus said the price of Alaska oil in fiscal year 2003, which runs between July of 2002 to June of 2003, averaged $28.14 a barrel. The forecast projects $25.28 a barrel in FY 2004, $21.67 a barrel in FY 2005 and between $22 and $28 a barrel from FY 2006 to 2010.

Those numbers assume oil production in Iraq begins ramping up by this summer, according to Chuck Logsdon, chief petroleum economist with the department. The price of oil also depends on how members of the Organization of Petroleum Exporting Countries approach a post-war Iraq.

"The forecast assumes that OPEC and in particular the countries that have ramped their production up - Saudi Arabia and Kuwait - would lower their production to prevent an oversupply situation, which of course would present the possibility of much lower oil prices," Logsdon said.

The forecast also assumes $2.471 billion in spending this fiscal year and $2.5 billion in spending for 2005.

Corbus said the forecast does not include projections on future taxes.

• Timothy Inklebarger can be reached at timothyi@juneauempire.com.

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