The State of Alaska’s Budget

Opinion Editorial: By Senator Drue Pearce

Alaskans must acknowledge our long-term budget problem. We need to revise the rhetoric we use to discus the state’s finances because new realities will force us to consider difficult choices.

Our strong national and state economies have lulled us into a false sense of security. New North Slope oil and gas fields have come on line, we have low unemployment, our state bond rating is up, new leasing is expected in the National Petroleum Reserve Alaska, and we have the most powerful congressional delegation in the United States.

Combine these positive elements with the lack of focus on economic issues during this year’s campaign cycle, and its easy to understand why most Alaskans are not concerned about the deficit spending in our state budget.

With oil prices at their lowest price ever, below $9.00 per barrel, we cannot ignore reality any longer.

Our state’s fiscal situation is grim. Recent headlines tell the story:

The future outlook is equally as grim. The Department of Revenue (DOR) just released its fall revenue forecast. The forecast shows the average price of oil remaining very low for several years.

The Department of Revenue’s fall projections for production show output in Fiscal Year 1999 expected to average 1.18 million barrels a day, down from 1.28 million last year. This decline is predicted to reach to 1.12 million barrels a day in Fiscal Year 2000 with long and steady decline expected after fiscal year 2004.

Based on the December forecast, Alaska’s fiscal gap is expected to exceed $1 billion. To cover the present year spending gap, we will need to spend nearly one-third of our "safe landing" savings account, the Constitutional Budget Reserve.

Alaska is at an important juncture. We all have to begin making tough decisions.

Given the situation, the Senate Republican Majority proposes that we continue to make spending reductions as we work with the state’s other leaders and the public to develop a long-term solution.

We have an immediate plan:

  1. We challenge the governor to ask his departments to immediately "tighten their belts." We suggest he direct his agencies to make further real reductions in Fiscal Year 1999 spending and present legislation on the first day of session that proposes those specific reductions.
  2. We expect the governor’s supplemental spending requests for this fiscal year to be net zero spending increases.
  3. We challenge the governor to propose a fiscal year 2000 budget on December 15th that makes additional real spending cuts.

I realize we cannot solve the budget situation through budget reductions alone. But we cannot wait to "tighten our belts" while we write a plan for the challenges to come.

In writing that plan, state leaders are faced with many unpalatable choices. Unless Alaskans understand the severity of the problem, legislators and the governor will be hard pressed to find workable solutions and make the tough decisions.

Second, another challenge comes in the form of state employee contracts due for renewal this year. I personally call on negotiators to bring a zero increase in terms of dollars to the legislature for approval. We cannot afford major pay increases when the private sector is experiencing major layoffs.

Third, it’s a challenge to develop a new paradigm for our budget discussions. It’s a challenge to change the rhetoric about the permanent fund and tax pledges made during political campaigns. It’s a challenge for special interest groups to change their rhetoric when lobbying the legislature for money. And, it’s a challenge to change the rhetoric when partisan politics get in the way.

But face these challenges we must! It is imperative that every Alaskan be involved in these decisions. I believe it is the Legislature’s job to see that we don’t spend our entire state savings account without creating a long-term solution to carry us into the next millenium. Our children deserve an Alaska they want to live in and a future that is bright.

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