With high oil prices driving up state revenues, Southeast legislators say to expect a larger capital budget next year for public works projects, more money for deferred maintenance and another attempt to boost state funding for public schools.
That’s assuming oil prices stay elevated as the state works its way through the fiscal year that will end on June 30 and remain high in the forecast for the next year.
Lawmakers will return to work at the Capitol on Jan. 16.
With oil prices last week 30% higher than assumed in this year’s spending plan, “the state’s financial position is getting better,” said Sitka Sen. Bert Stedman at the Southeast Conference annual convention Sept. 19 in Sitka.
A larger capital budget for state, municipal and community projects is a near certainty if oil prices remain elevated. “You can pretty much bet on that,” said Stedman, who co-chairs the budget-writing Senate Finance Committee.
Alaska North Slope crude oil sold for $95.38 a barrel on Friday, Sept. 22, more than $20 above what is needed to balance revenues and spending this year. Alaska oil has averaged about $88 a barrel since the start of the fiscal year on July 1, as production cutbacks by Saudi Arabia and Russia have tightened global supply and driven up prices.
The difference to the state general fund in additional oil production taxes and royalties between an $80 average and $90 oil for a full year is $750 million. The full-year difference between $70 and $90 a barrel is about $1.4 billion to the general fund.
“If I were king, I would put the oil money to deferred maintenance,” Ketchikan Rep. Dan Ortiz told the conference. Ortiz, who also represents Wrangell, is a member of the House Finance Committee.
He pointed to low years of state revenues, particularly fiscal years 2015-2019, when deferred maintenance needs at public buildings were far short of adequately funded. “That’s a problem.”
But too much money can be a problem too. “Politicians get excited about spending that pot of money,” Ortiz said. “Sometimes, what is tempting in the immediacy, is not the best long-term goal.”
The risk, he added, is that “just when oil prices tend to go up, they tend to go down.”
He believes Alaskans should not lose sight of the need for a long-term fiscal plan that can survive periods of low oil prices and not overspend when oil revenues are high.
Ortiz, a retired teacher, spoke strongly about the necessity for increased state funding for public education. “We need to help our districts catch up,” he said of the years of inflation that cut into school budgets and years of inadequate state funding. State money covers more than half of district operating costs.
The Legislature this past session approved an additional $175 million in one-year funding for K-12 schools, about a 14% increase after more than six years with no change to the state funding formula. Gov. Mike Dunleavy vetoed the legislative appropriation in half.
Sitka first-year Rep. Rebecca Himschoot also spoke in support of a substantial increase in state funding for schools. Besides for all the other problems created by underfunded school budgets, she said, “we don’t pay our people well” and can’t keep staff.
Stedman, who noted that the Legislature can only appropriate money, not manage the schools, told the conference of local government, community and business leaders that student test scores “are in the toilet.” He added, “I don’t have the answer,” and asked districts to tell legislators how they can help schools do a better job.
The senator also talked about the need for more state funding for seafood marketing, particularly after the Alaska fishing fleet and processors suffered through a summer of miserably low prices because too much of last year’s catch is still unsold.
Heavier marketing could open new markets to sell more product, he said, which will require a substantial budget increase for the state agency that manages that effort. “The worst thing we can do is do nothing.”
Stedman, whose district includes Wrangell, also said he supports more state spending on tourism marketing.
With all the needs stacking up for spending, the senator cautioned that lawmakers should continue to put away money into the state’s savings account to ensure that the financial shock absorber is strong enough when oil revenues hit a pothole and the state’s cash flow comes up short.
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