News from the Senate Majority
Alaska State Legislature

Wendy Lindskoog, Senate Majority Press Secretary
716 West 4^th Avenue, Suite 510
Anchorage, Alaska 99501
Phone: 907/269-0257
http://www.akrepublicans.org
Broadcast Actualities: 800/478-6540

State Revenue Forecast Bleak

Senate Majority Challenges Governor to Submit Smaller Budget, Reduce Current Budget

For Immediate Release: December 1, 1998 Contact: Wendy Lindskoog at (907) 269-0257.

Anchorage – Responding to the State’s grim fall revenue forecast that estimates the average price of oil per barrel in Fiscal Year 99 at $13.03, Senate Majority leaders said Tuesday that Alaskans are faced with a serious budget deficit and challenged the governor to respond immediately.

Senate President Elect Drue Pearce said oil prices are now estimated more than two dollars lower than they were in the April forecast. "We suspected that the governor painted an overly optimistic picture when State estimates came in at $15.32 per barrel compared to estimates from Cambridge Energy Research Associates at $13 to $13.50 per barrel," Pearce said. "While the spring forecast was unrealistically optimistic, we feel the fall forecast for FY 99 and FY 00 represent a truer picture."

Pearce, however, questioned the Department of Revenue’s FY 01 numbers. "The governor’s FY 01 forecast rebounds to a level not supported by any reliable economic indicators nor by any other forecast we’ve seen," said Pearce.

In 1996, the State’s looming fiscal gap prompted Republican majority legislators to address state spending head on. The Majority developed the Five-Year Budget plan and met their goal in reducing state spending by $190 million over 3 years.

"While these reductions resulted in a stable economy as prices began to decline, they represent only the tip of the iceberg in addressing Alaska’s true fiscal future," said Senate Finance Co-Chair Elect Sean Parnell. "It is imperative we continue to make reasonable budget reductions as the legislature, the governor and all Alaskans decide how to address this situation in the long run."

Parnell noted that based on today’s numbers, the governor is estimating a $940 million dollar draw on the Constitutional Budget Reserve for the present fiscal year. This includes no supplemental requests. The draw would be $240 million more than the $700 million legislative limitation enacted this May by the 20^th Legislature. At this rate of spending, the CBR will be depleted in less than four years.

Pearce called on Governor Knowles to immediately respond to the new forecast with some aggressive actions:

• The governor should match any supplemental spending requests he makes to the legislature with corresponding reductions in his agency budgets to result in net zero spending increases.
• With seven months left in this fiscal year (FY99), we ask the governor to direct his agencies to make further real reductions in FY 99 spending to partially close the gap left by our $700 million limitation to spending reserve funds.
• The Senate Majority challenges Governor Knowles to propose a FY 2000 budget on December 15^th that makes additional real spending cuts.

"We will not spend one-half of our emergency savings in just two years," Pearce said.

Pearce noted that in 1986, faced with a near billion-dollar deficit, Governor Sheffield attempted to restrict state spending by $450 million. The statutory authority for his actions was declared unconstitutional. As a result, the Legislature, in 1987, affirmed his reductions through legislation.

"Following this precedent, we call on Governor Knowles to propose, on the first day of session, legislation proposing specific reductions in FY 99 spending," Pearce said. "Governor Sheffield responded immediately to the 1986 crisis and we expect Knowles to take the lead now. He is in the best position to ask his agencies to target areas for reductions that will ensure the least impact on Alaskans."

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= Drue Pearce, 140 K