As oil prices plummeted and the scope of the state’s budget deficit grew over the past year, we have on several occasions in this space called on state leaders to look beyond short term measures and figure out how to prevent such a crisis from happening in the future.
Gov. Bill Walker’s administration appears to be taking a significant step in that direction with a revenue plan it pitched to lawmakers last week.
According to the Associated Press, the concept, as explained to lawmakers by Attorney General Craig Richards, would involve putting the state’s petroleum production tax revenue into the Permanent Fund along with half of the state’s resource royalties. Spun-off earnings, potentially around $3.3 billion a year, would go to the state general fund to help pay for government costs.
There are still details to be worked out, and while the plan wouldn’t entirely close the budget gap, it would protect the state from the volatility of oil prices. In recent years, about 90 percent of the state’s revenue comes from oil and gas; that figure has dropped to 75 percent this year. The price per barrel of North Slope crude was $111.56 on July 1, 2014; it was $47.39 on Thursday.
Clearly, a stable, sustainable revenue source is essential to Alaska’s future well-being.
The administration’s plan would affect the way permanent fund dividends are paid out, tying them to natural resource development rather than performance of the state’s financial assets.
Lawmakers say they are keeping an open mind about the proposal. Funding government while protecting the dividend program remains a priority. And, as Senate Finance Committee co-chair Pete Kelly noted, budget cuts will continue to be part of the budget plan when the Legislature convenes for its regular session in January.
Alaska will continue to face fiscal challenges in the coming year. Already tight belts are going to be tightened even more. But the discussion has started on how to get beyond the current crisis and lay a better foundation for the future, and legislators have a concept to build on. We expect a thorough vetting of the concept, a vigorous debate and reasonable compromise in the coming months. And we’re looking forward to see what solutions are put forward, because long-term stability benefits all Alaskans.