Analysis lays out weighty deficit impacts

By Becky Bohrer

The Associated Press

JUNEAU — Fall-back options, such as large cuts in capital budgets, imposing state sales or income taxes or cutting Permanent Fund dividends, may not eliminate future deficits, according to a newly released analysis by the Legislative Finance Division.

The division, in an overview of Gov. Sean Parnell’s budget plan, says current spending levels are unsustainable without additional revenue, and simply constraining spending growth is insufficient.

Without reserves, the report says the budget would have to be reduced by $2.5 billion annually for the state to live within its means.

The report made assumptions based on the fall revenue forecast, including no growth in agency and statewide operations after next year and capital budgets set at $800 million in unrestricted general funds annually.

It says state reserves would last until fiscal year 2024 if the forecast and assumptions held. Legislative Finance Director David Teal said there would be a comparable outcome whether the state stayed on its current schedule for paying on its unfunded pension liability or went with the governor’s proposal to move $3 billion from savings toward paying down the obligation.

“In just a few short years, the bottom-line fiscal question facing Alaska legislators has changed from ‘How much can we save this year?’ to ‘How large is the deficit?’ “ the report states.

Alaska relies heavily on oil revenues to fund state government, but production has long been on a downward trend. Higher prices in recent years helped to fatten state coffers and mask the fiscal impact of the decline. The Legislature last year passed an oil tax cut in the hopes it would lead to more production. That tax cut will be the subject of a referendum that voters will decide in August.

Parnell has said the state is on strong financial footing and will exercise spending restraint and use savings to get by while oil prices are lower. Parnell’s budget office, in laying out various scenarios of its own, showed funds in the statutory and constitutional budget reserve funds could be gone by fiscal year 2022 — or the state could still have billions saved up by 2024, depending on factors like oil prices, production and spending.

According to the Legislative Finance report, the statutory budget reserve fund, which is the easier of the two funds for lawmakers to access, is projected to close out the current year at about $2.8 billion. That is after a projected draw of about $1.9 billion for this year’s budget to account for lower-than-expected revenue.

There is projected to be about $12.2 billion in the constitutional budget reserve at the end of this year, June 30, according to the report. Parnell, in his 2015 budget plan, proposed moving $3 billion from that fund toward paying down the state’s roughly $12-billion unfunded pension liability, an approach that he said would allow for flat, $500 million payments. 

He has said the current payment schedule, which calls for increasing payments that would top $1 billion before declining, will put too much pressure on the state budget.

The Legislative Finance report says state assistance for retirement, under the current payment schedule, “constitutes a major portion of projected deficits.”

Senate Finance Committee co-chair Kevin Meyer said lawmakers knew deficit spending was coming, which is one reason for the push to change oil taxes.

Meyer, R-Anchorage, said he believes the tax cut will lead to more production, which will lead to more revenue, but he said that could take a couple years.

He said he doesn’t see legislators talking about other possible sources of revenue, like taxation, at this point.

Nothing legislatively has been proposed, either, that would try to reduce or eliminate Permanent Fund dividends.

More in News

The 2021 elections will be held Oct. 5.
Kenai Peninsula Borough School Board Q&A

On Tuesday, Oct. 5, elections will be held for Homer City Council,… Continue reading

The 2021 elections will be held Oct. 5.
Kenai Peninsula Borough Assembly Q&A

On Tuesday, Oct. 5, elections will be held for Homer City Council,… Continue reading

The 2021 elections will be held Oct. 5.
Homer City Council candidate Q&A

On Tuesday, Oct. 5, elections will be held for Homer City Council,… Continue reading

Traffic moves north along the Sterling Highway shortly after a fatal crash closed the highway for several hours Wednesday, Feb. 24, 2021. The state is seeking federal funding for a project aimed at improving safety along the Sterling Highway between mileposts 82.5 to 94, or between Sterling and Soldotna. (Photo by Erin Thompson/Peninsula Clarion)
State looks to federal funding for Sterling Highway project

The project is aimed at improving highway safety between Sterling and Soldotna.

Ethan Benton (left) and Laura Walters of Kodiak win the vaccine lottery for the Alaska Chamber's week one vaccine lottery giveaway "Give AK a Shot." (Screenshot)
State names winners in 1st vaccine lottery

A Valdez and Kodiak resident took home checks for $49,000 each.

Ashlyn O’Hara/Peninsula Clarion
A podium marks the beginning of a StoryWalk at Soldotna Creek Park on Tuesday, June 29, 2021 in Soldotna, Alaska. The project was discontinued in August due to vandalism.
Vandalism ends Soldotna library program

The StoryWalk was made possible by a $2,500 donation from the Soldotna Library Friends.

Juneau Empire file
The Coast Guard medevaced a 90-year-old suffering stroke-like symptoms near Ketchikan aboard a 45-foot response boat-medium like this one, seen in Juneau, on Thursday, Sept. 16, 2021.
Coast Guard medevacs man from yacht near Ketchikan

The 90-year-old suffered symptoms of a stroke.

James Varsos, also known as “Hobo Jim,” poses for a photo during the August 2016, Funny River Festival in Funny River, Alaska, in August 2016. (Peninsula Clarion file)
‘Hobo Jim’ opens up about recent terminal cancer diagnosis

Varsos was named Alaska’s official “state balladeer” in 1994.

Most Read