Oil prices tumbled this week as China devalued its currency, continuing a trend on world markets that exacerbates the financial challenge facing Alaska.
With oil below $50 a barrel, Alaskans will worry a bit more about the $3 billion budget gap, but savings stashed away before the oil-price collapse will continue to insulate most people from the stark new reality of state finances.
This has yet to sink in, but the largest revenue source supporting education and state government operations in Alaska is no longer oil, but a rapidly dwindling bank account.
Something has to give and fast.
Our legislative leaders must start telling Alaskans the unpleasant truth -- simply cutting government spending is not enough to solve the state budget problem, preserve the Alaska economy and maintain services that state residents expect. Most legislators understand this, but they are worried about re-election in 2016 and they'd rather talk only about cutting government, which always works at campaign time.
In the two months since the Legislature dragged to a dysfunctional dead stop, oil is down by more than $15 a barrel, extending the dangerous gap between income and outgo.
In rough numbers, oil at $50 means the state will spend about $5,850 a minute from savings and about $3,360 a minute from taxes and fees during this fiscal year. That imbalance poses a grave threat to Alaska's future.
It requires a solution that looks at spending, taxes and the use of Permanent Fund earnings. But first, it requires our elected leaders to level with the people.
The Republican-dominated majorities in the House and Senate have made it clear they want to keep the focus on budget cuts, avoiding talk of taxes or the use of Permanent Fund earnings until after the 2016 elections. When Gov. Bill Walker convened a weekend fiscal conference in June in Fairbanks, the GOP derided the effort as "summer tax camp."
The desire to delay ignores the mathematical evidence, which shows we have no time to wait. When the next state budget becomes law in 2016, we may have drawn down the Constitutional Budget Reserve to the point where it can no longer be used to pay most of the bills in the years that follow.
If the reserve is to continue as a fund for emergencies, the only sensible thing is to keep a few billion on hand to deal with disasters. That means the withdrawals have to end in the next two years unless oil prices more than double.
If the state does not act in 2016, the Alaska Permanent Fund earnings reserve may be the only option for funding state government as early as 2017-18. At $52 billion, the Permanent Fund is a giant lifeline, but the use of its earnings will require a difficult political compromise.
Everyone in state politics knows this cannot be just a budget-cutting exercise, even those who don't dare to say it out loud. Eliminating every state employee would not come close to a fiscal fix and the state could stop all spending on education and remain in a giant hole.
One consequence of delay is that the substantial earning power of billions in the Constitutional Budget Reserve -- which could have surpassed that of a state income tax -- has already been lost. To avoid repeating that mistake with the Permanent Fund earnings reserve, the state must develop a fiscal plan this year that spreads the risk and the pain.
The Legislature should have concluded its 2015 session by assigning committees to address spending cuts, taxes and Permanent Fund earnings before next year, along with hearings across the state. But legislators have done nothing but offer vague comments about the need for continued cuts and how Alaskans are not ready for taxes -- time-tested themes that evade the most difficult questions.
"The governor just hasn't got the message through yet," Fairbanks Republican Sen. John Coghill told the Alaska Dispatch News the other day. To his credit, Coghill attended Walker's weekend conference in Fairbanks, while most legislators didn't bother. But it's not just the governor who needs to convey the message about state finances to Alaskans.
Choosing delay when action is needed only increases the chances of repeating the 2015 legislative budget fiasco in 2016. A super-majority vote is likely to be needed in the House, which means that the Republican-led majority will have to negotiate instead of dictate. Add to that the danger of withdrawing too much from the budget reserve and a crisis is just around the corner.
Lawmakers who are already making excuses that they won't be able to do much next year because of the election ought to be thinking longer term -- the year after next. Tough choices are not going to win popularity contests or elections, but they are necessary.
Legislators are missing an opportunity this year to involve the public in what amounts to a major turning point in our state's history. In April, Fairbanks Sen. Pete Kelly pooh-poohed the idea of a "road show" to involve the public, suggesting that it would be taken over by organized groups opposed to budget cuts. That's not a good reason for leaving the public out of this crucial debate.
The legislative leaders who want to talk about nothing but budget cuts are short on specifics. They mention the need to cut education, for instance, but don't say anything about class sizes, closing schools or laying off teachers. Without those details, the public is not in a position to respond in an intelligent fashion or suggest alternatives.
In general, no one objects to budget cuts. But budget cuts are never general, they are specific. Therein lies the problem.
The biggest reason for the public disconnect on the overall state budget is that the number is impossible to visualize -- three billion seconds ago Anchorage had just been founded -- and there is no obvious connection between the state shortfall and household finances. If every Alaskan had to come up with $5,000 to fill the gap, the discussion would be lively.
So far the topic remains an academic abstraction. The Walker administration has held nearly a dozen budget sessions across the state and some individuals, such as University of Alaska Economist Gunnar Knapp, have given detailed presentations that have helped prepare people for what is ahead.
The governor intends to propose a plan in late September or early October, looking for public comment and suggestions. This package is likely to include a combination of spending cuts, taxes and the use of Permanent Fund earnings, all of which will be unpopular with different groups of people. If there is an overriding message, it should be the need to limit the damage to the state economy and prevent a crisis.
Much more needs to be done by the governor and the Legislature. People won't be crazy about continued budget cuts, paying taxes and changing the use of Permanent Fund earnings, but the state can't afford delay. Legislators should put aside their differences with the governor and go on the road with him this fall, explaining that they may differ on some details, but the status quo can't continue.