Walker: Alaska will weather fiscal storm

  • By Tim Bradner
  • Sunday, December 21, 2014 8:56pm
  • News

Gov. Bill Walker is reaching out to community and business leaders to help guide him through some tough times with the state budget.

In a speech to the Anchorage Chamber of Commerce Dec. 15, Walker’s first address to a major business group since taking office Dec. 1, the governor promised to be honest and “blunt” about the state’s deteriorated fiscal position.

“We have to make adjustments. Alaskans have done this before and we can do it again. We can do it together, in collaboration, rather than making late-night decisions on the third floor,” he said, referring to the governor’s office in the state capitol building.

Walker appeared at the podium with new budget director Pat Pitney and acting Revenue Commissioner Marcia Davis.

The governor said he met with legislative leaders last week, with Davis showing details of the fiscal situation that were also displayed to Anchorage chamber members.

State budget documents for upcoming fiscal year 2016, which starts July 1, were also released Dec. 15 as required by law, but Walker said these were placeholder budget bills that had been developed by the outgoing administration of Gov. Sean Parnell.

The operating budget developed by Parnell was submitted by Walker but the capital budget was stripped of virtually all items except required state matching funds to federal programs.

Walker said he will submit his own budget to the Legislature, including a new capital budget, on Feb. 19, the required date for the administration’s amendments to the fiscal year 2016 budget bill.

“Any growth in the capital budget will be done with the utmost scrutiny and with an eye toward items that reduce future obligations,” said Pitney, the state budget director, who followed Walker at the podium at the chamber meeting.

Walker has been dealt a tough hand of cards with oil prices that have plummeted in recent weeks, closing below $60 a barrel Dec. 15. State revenues from oil, which pay about 90 percent of the state budget, are expected to be cut in half this year.

The governor was asked at the chamber meeting about his campaign pledge to expand Medicaid to cover low-income Alaskans without health coverage.

“This is moving forward. We were surprised to learn that there will actually be some savings (for the state) in the expansion,” Walker said.

He will release details on the savings as soon as they are known with more certainty, he said.

Walker didn’t comment on the current problems in the state Medicaid payment system but in the previous week his Commissioner of Health and Social Services Valerie Davidson told reporters that the payment problems as well as issues with enrolling larger numbers of Alaskans in Medicaid were creating unexpected challenges.

Grace Jang, Walker’s spokeswoman, said in an email the governor was aware of the problems in the Medicaid system.

The governor did not mention the major natural gas pipeline and liquefied natural gas export project in his speech. The state is a financial partner in the gas project and preliminary engineering is now underway with major decisions by the state and its industry partners needed in 2015.

Walker was upbeat in his speech about the ability of Alaskans to ride out the current fiscal problems.

“The price of oil doesn’t define us as Alaskans. We’ve been here before (in previous oil price plunges) and we’ll work our way through this responsibly. We’re not declaring a crisis — we’ll work our way out of this,” Walker said.

Fortunately, the state has ample cash reserves, about $12 billion in ready assets in two state reserve funds; that tally allows for a $3 billion transfer from reserves to state pension funds authorized by the Legislature in its 2014 session.

Walker pledged not to just whack the budget; it would be too disruptive for the state economy.

“You can’t cut your way to prosperity,” he said.

There is no alternative to relying of reserves to cushion state budget deficits estimated at $3.5 billion this year and next, and continuing.

The needed restructuring of state finances will also present some opportunities. Walker didn’t elaborate on these, but later, in answering questions, the governor said that “public-private partnerships” in delivering public services was a major theme that developed in transition recommendations from a conference of citizens held in late November.

On the oil price outlook, Walker said state petroleum economists believe it will take some time for prices to nudge up.

“Circumstances overtook us. The world commodity markets were shaken when the Saudis decided not to cut production and to just wait it out until high-cost producers drop out,” he said. “At $60 oil prices it is expected to take about a year to 18 months for the (excess) supply to drop. After that we believe the price will edge up.”

Meanwhile, in doing forecasts of state revenues Walker said he has instructed the Revenue Department, “to be as accurate as possible, and conservative.”

In her presentation to the chamber following the governor’s remarks, Davis said the Revenue Department has projected an average oil price of $76 per barrel for the current fiscal year, which is now about half over.

The average price estimate is a blend of higher prices in the early months of the fiscal year starting in July, when the price was more than $100 per barrel, and expected lower prices for the fall and spring months.

The average price is estimated at $66 per barrel for next fiscal year, fiscal year 2016.

A correction in the oil markets is expected in fiscal year 2017, and prices are estimated at $93 per barrel. In years after that a $90 per barrel price is used for planning purposes but Davis, the acting Revenue commissioner, told chamber members that forecasting oil prices beyond two or three years is highly risky.

The near-term price estimates are conservative, she said. State economists have assigned a 60 percent confidence level to the estimates.

In later years, after 2017, there is a 50 percent confidence level in the price forecasts, Davis said.

However, even a return to a $90 oil price won’t end the budget deficits, she said. The current estimate is that state reserves will be sufficient to cover budget deficits through fiscal year 2022.

However, that assumes keeping the state budget at about $5.5 billion in unrestricted general fund spending, which is about the budget level of fiscal year 2014, which ended June 30.

Unrestricted general fund spending for the current budget year is about $6.1 billion.

Jang, Walker’s spokeswoman, said the details of a community outreach on budget issues are still being worked out.

“The cabinet needs to have a few more meetings but in the near future we will meet with lawmakers are community groups. We’re not sure how this will look. The governor will attend as many as possible,” Jang said. “As for engaging the public, we will set up an online forum through which Alaskans can weigh in with their ideas. This is still in the formative stages.”

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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