Alaska oil production and prices are below last year’s estimates, and the state could run out of money before the end of the fiscal year in June, members of the Senate Finance Committee were told Feb. 21.
“It’s a bit of a nail-biter,” said Neil Steininger, director of the Office of Management and Budget.
While the prospect may sound alarming, it’s not as bad as it sounds, said Sitka Sen. Bert Stedman, co-chair of the Finance Committee.
“There’s nothing to worry about,” Stedman said. The state’s fiscal year doesn’t end until June 30, and legislators have months to cut spending or approve drawing on savings to cover a possible gap.
In addition, a small rise in oil prices or North Slope oil production could resolve the problem, as could better-than-expected revenues from the state’s corporate income tax.
An updated revenue forecast will be published in March, and corporate tax figures will be available in April.
The takeaway lesson, lawmakers said, is that gambling the state budget on the price of oil can backfire.
Last spring, the Alaska Department of Revenue estimated that North Slope oil prices would average $101 per barrel between July 1, 2022, and June 30, 2023. Through Feb. 17, prices have averaged $91.72.
Prices would need to average about $83 from now through July 1 to avoid a budget deficit for the year, said Alexei Painter, director of the Legislative Finance Division, the nonpartisan office that provides budget analysis for lawmakers.
The price last Friday was $79.80 per barrel.
On Feb. 21, Painter projected a year-ending deficit of about $300,000 based on current information.
Tapping the Constitutional Budget Reserve, a $2 billion savings account, is another option to make ends meet, but three-quarters of the House and three-quarters of the Senate would need to vote to spend from the reserve fund, and Stedman said there aren’t enough votes to pull from that account.
Facing a deficit and without access to the reserve fund, lawmakers or the governor would have to cut spending to fill any gap, regardless of the size.
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