On Wednesday, the Alaska Senate Finance Committee received a briefing from David Teal, Director of the non-partisan Legislative Finance Division. This is the third time that Teal has addressed the committee on the state’s projected multi-billion dollar revenue shortfall for the fiscal year beginning in July. The new presentation included the most recent oil revenue forecast from the state’s Department of Revenue, and assumed that the Senate’s version of the state budget, which is currently in negotiation in conference committee, would be adopted for purposes of the model.
Under those circumstances, the Legislative Finance model show’s the state’s Constitutional Budget Reserve lasting for about seven years’ worth of budgets. David Teal and some legislators expressed concerns about the projected rise in the price of oil, however. For most of the briefing, the assumed value of a barrel of oil was left at $70. Currently, a barrel of Alaska North Slope crude is worth about $62 on the open market. With that assumption, the model shows the state running out of Constitutional Budget Reserve funds in 2018.
That projection assumes the Senate’s version of the next state budget, with estimated total reductions of around $800 million from the current budget. The Alaska House of Representatives passed a different budget with fewer cuts. According to the $70 per barrel assumption, either budget proposal would see the state’s Constitutional Budget Reserve run dry after 2018. After that, the state could potentially tap into the earnings reserve for the Permanent Fund.
Teal says the Senate cut deeper into the state budget than he would have anticipated, but adds that he does not think it can be done again next year. He demonstrated in the model recurring 10% cuts each year through 2025, and says they would not significant slow the rate at which the state is burning through reserves, assuming $70 per barrel oil.
Teal did acknowledge in the hearing that cuts show up faster than increases in revenue, such as taxes, since there is an implementation period. Senate Finance members have said that alternate revenue streams could be discussed after the end of the 2015 session.
The Senate Finance Committee has scheduled a meeting with Pat Pitney, head of Governor Bill Walker’s Office of Management and Budget, for Thursday afternoon.