Alaska is a great state and a wonderful place to live. We are truly blessed. But, as a state, we now face a very uncertain financial future as both the amount of oil we produce and the value per barrel falls. Really, there is no place to hide. There is no way that each of us, and our communities, can avoid absorbing our share of the inevitable spending reductions rapidly approaching.
The big questions are how bad is it going to get and when will we start to feel it. As I write, the current price of West Texas crude is $50.32 per barrel. The state needs $140 per barrel to break even this fiscal year. We currently face a deficit of $3.5 billion for fiscal year 2015. We have approximately $12.6 billion in savings, not including the Alaska Permanent Fund. There are two savings accounts known as the Statutory Budget Reserve and the Constitutional Budget Reserve. By the end of this legislative session the SBR will be gone and we will likely have in the vicinity of $9.6 billion remaining in the CBR.
Looking forward there are two schools of thought. The first, and most optimistic, assumes that the price of oil will be about $66 per barrel next fiscal year before rebounding to $93 in fiscal year 2017, and then back over $100 per barrel thereafter, gradually increasing to $134 in fiscal year 2024. Under that scenario our savings reserves decline to $6.6 billion at the end of fiscal year 2016, $5 billion in fiscal year 2017, and then slowly reduce until they are exhausted at the end of fiscal year 2022. Zero savings left at that time. Seven years from now. And that's the optimistic scenario.
The scenario no one likes to talk about, and the one that appears to be increasingly realistic, assumes that oil does not rebound in 2017 as predicted and remains low. For illustrative purposes, if the price of oil remains at $50 per barrel our entire savings reserves will be gone by the end of fiscal year 2017. That's less than three years from now.
So, please put that into perspective: In less than four years we could likely use up $12.6 billion in savings. And then what?
We might as well start talking about reality right now. We will not be able to cut ourselves out of this situation. The results would be devastating, particularly for rural Alaska. The solution must be a combination of cuts and revenue generation. Revenue generation means taxes. And the wise use of earnings from the Permanent Fund must inevitably be on the table. Lastly, cuts that we do make must not fall disproportionately on rural Alaska. Rural Alaska simply does not have the same financial resources and revenue generation capability as urban Alaska.
Think about it. Talk about it. This is our new reality. There is no place to hide.
Larry Cotter is CEO for the Aleutian Pribilof Island Community Development Association, one of Alaska's six community development quota corporations.
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, e-mail commentary(at)alaskadispatch.com