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Report offers sobering assessment on AK spending

Published on NewsOK Modified: January 14, 2013 at 5:22 pm •  Published: January 14, 2013

JUNEAU, Alaska (AP) — Alaska would face a budget deficit of $920 million if spending for next year matched that of the current year, a report released Monday states.

The Legislative Finance Division report offers a sobering look at the state's fiscal situation amid declining oil production and lower oil prices. It was released a day before the start of the new legislative session.

The price of oil would have to be an estimated $105 a barrel for the governor's proposed new budget to balance — and that is before lawmakers get to work on it. As recently as fiscal year 2010, the break-even price of oil was $64 a barrel, rising to $110 a barrel for the current year, according to the report. The state Revenue Department is forecasting an average oil price of around $109 a barrel for next fiscal year, 2014.

"The rapid increase in the break-even price of oil ... should be cause for concern," the report states. The report echoes concerns also raised by Parnell's budget office.

Alaska relies heavily on oil revenues to run, and higher oil prices in recent years have helped to mask the impact of declining oil production. According to the report, Alaska anticipates a budget hole of $410 million in the current budget year — even though lawmakers last year left Juneau anticipating a surplus of $490 million — in part because of lower-than-expected oil prices. That hole is to be filled in by using money in reserves.

Parnell has made clear his desire to limit spending, evidenced by the record budget vetoes he made in 2011 and his efforts last year to get lawmakers to agree to spending caps. He has called on lawmakers to work with him to set spending limits again this year. "A self-imposed, reasonable limit is the key to successful and sustainable spending," he said in announcing his budget plan in December.

House and Senate leaders say they share concerns about the sustainability of the state's spending. Senate Majority Leader John Coghill, R-North Pole, for example, said he'd like to see more frugal budgeting, particularly when it comes to the operating budget, the budget that funds the operations of state government. Spending on agency operations has increased an average of 6.5 percent a year for the past 10 years, the report states.

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