Gov. Bill Walker asked business leaders at the Anchorage Chamber of Commerce luncheon Monday for their help in educating the public about the seriousness of the state budget crisis.
The message — delivered after only 15 days in office — was more sobering than alarming.
“Can we completely reduce this down, without dipping into our savings? No,” said Walker. “We cannot cover a $3.5 billion deficit and not hurt our economy. We don’t want to turn our economy into a tailspin. But we want to be honest and forthright about where we are and what it’s going to take to make this state work.”
Walker submitted the 2015-16 operating and capital budget on Monday as required by state law.
He let the operating budget, as submitted by former Gov. Sean Parnell, stand at $5.3 billion, without endorsement. But Walker trimmed Parnell’s capital budget by almost by half, from $220 million down to $106 million.
Among some of the cuts:
- $45 million: Knik Arm Bridge and Toll Authority
- $20 million: Susitna-Watana Dam
- $32 million: Weatherization & Energy Projects
- $8 million: Ambler Road Project
In recent weeks, oil prices have spiraled downward to below $60 a barrel. State budget analysts say prices will eventually climb again, but they may not make a significant comeback for several years.
The Department of Revenue estimates that the average price of oil will be $76 a barrel in 2015. According to their estimates, it will dip to $66 in 2016 and bounce back to $93 in 2017. When the budget for fiscal year 2014-15 was crafted, oil prices were at least 40 percent higher. Now, the state is expecting a budget deficit of $3.5 billion and another deficit of more than $3 billion in the coming fiscal year.
“We on a self-imposed diet of sorts,” said Marcia Davis, who is a former deputy commissioner for the Department of Revenue and is currently the state’s acting revenue commissioner.
Davis told the chamber the state has time to develop a long-range strategy. Based on an annual operating budget of $5.6 billion, state budget reserves could last for perhaps another eight years, she says.
“What you’ll see is that our statutory and constitutional budget reserves run out approximately between years 2022 and 2023,” said Davis. “We’re not in a ‘sky is falling’ moment, but we certainly have the space and time right now to get our act together.”
Not everyone was reassured at the chamber luncheon. During the question-and-answer period, one man stood up and said, “Two words: Medicaid expansion.”
Walker says his Medicaid expansion plans are on track, and there are signs that it might result in savings for the state. The governor said his administration plans to roll out some numbers in the near future.
There were also concerns about education spending.
Alyse Galvin, one of the organizers of the grassroots group Great Alaska Schools, told Walker she wanted a “temperature reading” on school funding.
“As you know, we are in a fiscal crisis in this state,” said Galvin. “I wanted to know if it’s still something you think of holding sacred.”
Walker said he couldn’t give her any exact numbers about education funding.
“But our priorities have not changed,” said Walker. “We’re going to figure out how we can have the best education available to our students at a cost we can afford.”
For those who track the economy, there was a sense of déjà vu.
Andrew Halcro, who now serves as president of the Anchorage Chamber of Commerce, was a state representative 16 years ago.
“We had a billion-dollar budget deficit and about a year and a half worth of savings left,” said Halcro. “And we were saved, as we had been in the past, by higher oil prices.”
Halcro said the public believes government is always crying wolf, so they don’t realize this current fiscal crisis is very different.
“The challenge now is you have not just lower oil prices but also lower production, which is a double whammy,” said Halcro.
When Halcro was in the Legislature, he said production was at about one million barrels a day. Today, it’s about half that amount.
“I seriously believe that until Alaskans see and feel the pain, nobody’s going to believe the state has a problem,” Halcro said.
Bill Popp, head of the Anchorage Economic Development Corporation, says the challenges Alaska is facing now are issues the state has put off. Popp also said he’s relieved the governor is not calling for drastic budget cuts.
“You’re always concerned that radical decisions come to the forefront before careful and thoughtful decisions are actually developed,” said Popp, who says he was glad to hear the governor plans to use reserves to soften the blow of declining oil prices.
As for lawmakers, who will have to work within the confines of today’s new budget realities, there’s hope the governor will turn crisis into opportunity.
“The state of Alaska is facing a budget deficit of unanticipated magnitude – $3 or 3.5 billion,” said Rep. Mike Hawker, a Republican, who is the incoming Legislative Budget and Audit Committee chairman, as well as a former House Finance Committee chairman.
“The last time we saw a circumstance similar to what it is today is really when I was elected to the legislature back in 2002,” he said. “And yes, very conventional wisdom from the public was, ‘Don’t touch my PFD.’”
But Hawker says the Permanent Fund Dividend needs to be one of the options on the table – either capping it or making it politically possible for the state to use some of the earnings from the fund. He says personal income and sales taxes also need to be considered, adding that, from a personal standpoint, he neither condemns nor endorses any of the options.
In the meantime, the new Walker administration says it’s attempting to cautiously navigate the state’s financial straits while charting a new course.
“In times like we’re in now, we’re forced to be more creative than perhaps at $147 dollars (a barrel),” Walker said. “We’re going to be bold and aggressive on developing Alaska and growing Alaska.”
The administration is reaching out to the public for some of those creative ideas. It says it’s in the process of setting up a system for people to bring solutions forward.