With oil prices close to $50 per barrel, oil production taxes trickle into the state at close to a half-million dollars a day. Add in the rest of oil revenue and other taxes and the state is still withdrawing about $8.5 million a day from its savings.
While some legislators hope that this too will pass, the risk of postponing action is too great to ignore.
Siphoning billions from savings every year without developing a transition plan is reckless. It endangers the state's bond rating, weakens investors' confidence and limits options for Alaska's future on everything from the gas pipeline to schools and roads.
The volatility in the stock market has led to multibillion-dollar swings in the value of the Permanent Fund, and while world oil markets have rebounded somewhat, it's not enough to change the forecast.
"We actually have very little revenue coming in right now, with the low oil prices and a market that's appearing to correct," Revenue Commissioner Randy Hoffbeck said Aug. 24 during a financial update for the House Finance Committee.
The state predicted oil prices of $66 a barrel for this fiscal year, which is about $15 higher than current prices, which means an extra draw of hundreds of millions from savings.
Legislative leaders want to avoid discussion of taxes and the use of Permanent Fund earnings for as long as possible. That's understandable, but it's not leadership.
The best piece of advice Hoffbeck had for the committee was to not focus exclusively on budget cuts, but that remains the inclination of those who control the Alaska Legislature. The math against that approach is overwhelming. We could eliminate every state job in Alaska and still face the Grand Canyon of budget gaps. Or we could eliminate all state funding for education and be left with an untenable situation.
This is not an argument against cutting the budget. It's proof that a solution requires a balanced approach that includes budget cuts, taxes, the use of Permanent Fund earnings, etc.
Rep. Bryce Edgmon, a rural Democrat who belongs to the majority caucus, said lawmakers are talking informally about budget cuts next year of $500 million to $700 million. That would be a significant cut, but it would leave a deficit of more than $2 billion and not be enough to preserve the state bond rating.
Cuts of that magnitude would translate into job losses and reduced services, although until the details are identified, it will be impossible to put the total into terms that people will understand. If it means more students in every classroom, fewer snowplows and longer wait times when summoning the Alaska State Troopers, the enthusiasm for budget cuts will tend to diminish.
Talking about budget cuts is easy as long as you keep the discussion general enough to be meaningless, which is the situation in Alaska today. But once an idea hits the table, there will be voices raised about why something else should be cut instead. The process is difficult, which is why lawmakers don't want to get into specifics.
Edgmon said at the budget update hearing that dealing with the deficit is really a political challenge. "To me, none of this is going to happen until the public buys in," he said.
"We all know we have to get new revenue from someplace. And we all know the Legislature's not going to act until the general public feels the same thing. That's just the reality of it all," he said.
"In terms of convincing the public, we're going to have to do it in a layer-by-layer fashion. And it's going to take some time."
The problem with that logic is the state does not have time and it is not the job of the governor and legislators to wait until public opinion polls signal it is OK before they make difficult decisions. In addition, legislators need to stop telling people exactly what they want to hear -- the phony claim that solving the problem is as simple as slashing a bloated budget.
Putting off tough choices until after the next election means a greater chance that the Constitutional Budget Reserve will be gone and a greater chance that the state will be forced into a drastic change of course within a few years. In the meantime, the earning power of billions in reserves will have been lost, which will make conditions in Alaska that much harder in the years ahead.
The notion that "we all know" that nothing will happen is a sorry excuse, though I believe that Edgmon has correctly summarized the view of his colleagues. It's not leadership to defend inaction on the grounds that the public has yet to demand billions in budget cuts, layoffs, taxes, a cap on dividends and the use of Permanent Fund earnings. The public is never going to make those demands.
We elect leaders to analyze the options, study the numbers and make decisions to serve Alaska. No doubt the more difficult decisions will make ready campaign fodder. But it's up to all of us to recognize just what it means to spend $2 billion to $3 billion a year in savings that can't be replaced.
A solution that relies only on the use of Permanent Fund earnings is no more defensible than one that only considers raising oil taxes, cutting oil tax credits, restarting the income tax or cutting the budget. I'm afraid the only approach that might work would be to irritate every political faction in the state just enough to create a consensus that everyone is feeling the bite. Otherwise, there will be many reasons to just say no.
The state has options and resources to adjust its finances and the lowest personal tax burden in the country. If we become more like other states in terms of taxes and spending, we can go a long way toward a solution that will limit the economic damage.
We all know that something needs to change.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.