Dear District 18 Residents:

You have all, I'm sure, contacted me at one time or another in the last eight years about some aspect of the state budget, the deficit, and/or Alaska's fiscal future. As you are aware, Alaska's state budget depends greatly on the price of our oil. You may also have heard national news stories about the high price of oil and wondered how it would affect Alaska's budget.

Channel 2 News aired a story on September 5th about the current price of Alaska's oil, and I discussed the effect that the price has on the state budget. I'd like to share that information with you here as well, and discuss with you the influence that petroleum has on our state's revenue in general.

At current production rates, every dollar increase in the yearly average price represents about $65 million more in state revenue. Conversely, every dollar decrease in the yearly average price represents about a $65 million loss of state revenue. This year's average yearly price so far is about $29 per barrel. The Department of Revenue projects that a yearly average price of $29 per barrel is the break-even price in terms of balancing the state budget. Today's price is $33.11. If oil prices stay very high, and we end the year with an average yearly price of $33.00, we would have a surplus of about $220 million. However, if the average yearly price decreased to about $27.00 per barrel, we would have a deficit of approximately $122 million.

This is an excellent opportunity to think ahead and discuss Alaska's fiscal future. The Channel 2 News reporter asked me if legislators would want to spend a surplus if there is one. My answer was, "Probably not". For years, it has been necessary to balance the budget with the state's savings account -- the Constitutional Budget Reserve, or CBR. The CBR is now dangerously depleted. If there is a surplus, then we should build our savings account back up again. We will need to have a healthy savings account for the future, as it is realistic to expect that oil prices will continue to fluctuate. We all remember times when the monthly price averaged only nine or ten dollars per barrel. It is only prudent to plan for the time when prices will drop again.

While we have discussed price per barrel, it is also important to note that production is more significant in terms of sustained revenue, as production volume influences our state budget much more than price per barrel. Production is now one-half of its peak 1988 volume, and is declining substantially each year.

The outlook for increasing revenue from our oil fields is not bright without the consideration of ANWR. However, I recently attended a briefing on the future of natural gas development in Alaska. It is now much more likely that our natural gas reserves will be developed and brought to market than it was ten years ago. If and when development occurs, it will still be three to five years before the state receives any tax revenue from them. I welcome the challenges ahead of us as we plan for further, responsible and efficient development.

I hope you will consider the possibilities and the options that face us, and discuss them with your friends and neighbors. Please let me know the results of your discussions and your thoughts on the matter. If you would like to know more about Alaska's oil revenues, you can contact me or find information at the Department of Revenue's website at http://www.revenue.state.ak.us/. I'll be happy to hear from you.

Sincerely,
Con

PRIVACY POLICY: All addresses are "blind" for your privacy. A strict "no spam" policy is observed. If you don't wish to receive "Legislative Update", just let me know. If you know a friend or neighbor in District 18 who has not received "Legislative Update" but would like to be included, I will be glad to include them if they contact me. Your replies, comments, questions, and/or suggestions are welcome. Constituent comments on legislation and policy issues may be tabulated, shared with other legislators, or quoted in speeches. Names, however, will be kept private.

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