Falling oil prices will limit state spending

Posted: Wednesday, December 10, 2008

Plunging oil prices may have Alaska looking at a bare-bones state budget for next year, the Palin administration said Tuesday.

This year's budget, flush with new oil revenue, had billions in extra spending above basic operating costs. That most notably included a $1,200 boost to each Alaskan's permanent fund dividend check.

Department of Revenue Commissioner Pat Galvin said the state is setting its estimated price per barrel of oil next fiscal year at $74.41. That's below the $83 per barrel on which this year's budget was developed, but well above current prices, which dropped to $35.61 on Friday.

Under the Department of Revenue's Fall revenue forecast, released at a press conference in Juneau on Tuesday, Galvin predicted the state would bring in $5.28 billion next year, down from this year's estimated $6.75 billion.

Galvin said that when Gov. Sarah Palin presents her budget proposal to the Legislature next week, it will be very conservative and possibly assume even lower revenues than the state's official forecast.

"It would be responsible to come in with a budget that is as lean as she can make it at this point in time," he said.

We're going to have to "live within our means," Palin told reporters prior to the governor's annual open house, but she wasn't clear whether that philosophy would allow dipping into the state's budget reserve funds, set aside for that purpose during boom times.

Today's spot market prices for oil are well below what the department is predicting for next year, Galvin acknowledged, but noted that the new fiscal year for which they were budgeting didn't begin for another seven months.

"Today's price will likely bear little resemblance to the price 12 months from now," he said.

Galvin said his department's revenue assumptions are based on a relatively quick end to the recession.

"If that does not occur, we will have to adjust our forecast accordingly," he said.

Oil prices are difficult to accurately predict, he said.

"There's nothing more humbling than being a forecaster of future oil prices," he said.

Under the department's price forecast released Tuesday, the state will likely have to dip into savings just to pay this year's budget. Last year the state brought in an all-time record $10.79 billion and has ample reserves to cover shortfalls.

One bit of good news from Galvin: While production from Alaska's mature oil fields is declining, the department predicted that decline will be slowed in the next few years by new fields coming on line.

Two independent companies will start producing oil during that time, including Italian-owned ENI at Nikaitchuq and Pioneer Natural Resources at its Oooguruk field.

• Contact reporter Pat Forgey at 523-2250 or patrick.forgey@juneauempire.com.

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