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Oil prices adjusted down for forecast Walker budget cuts capital spending to bone; administration to ask for public input on what can be cut based on falling crude prices Kristen Nelson Petroleum News
Gov. Bill Walker has submitted the operating budget prepared by the outgoing Parnell administration to the Alaska Legislature as a placeholder, along with a capital budget pared down to $106 million.
The governor’s office said in a statement that the capital budget includes only items with federal or other match funding, along with the Kivalina School planning funds which the state is legally obligated to provide.
In a Dec. 15 presentation to the Anchorage Chamber of Commerce Walker said with the steep drop in the price of oil “we are going to need to make significant changes in our state.” During the campaign, he said, he told Alaskans that the state was running a deficit of $7 million a day. That amount is now $11 million a day, Walker said.
“It’s not a Grinch who stole Christmas message today,” he said, “but it is one that we’re going to have to make some adjustments. And when I say we, I mean we as Alaskans.”
Walker said the state will “manage our way out of this” and rather than declaring a crisis, “declare an opportunity to manage our way out.”
He said adjustments will be made to the budget from the Parnell administration. “This is something that you don’t do overnight; this is something that you don’t do without having commissioners in place,” Walker said.
Several departments have acting or interim commissioners. Two departments with named commissioners have acting commissioners until the designated commissioners, Mark Myers in Natural Resources and Randall Hoffbeck in Revenue, come on board in January.
The state will have to dip into savings, Walker said, to cover an expected $3.5 billion deficit in fiscal year 2015.
“We don’t want to turn our economy into a tailspin,” he said, “but we want to be honest and forthright about where we are.”
The falling oil price Marcia Davis, acting Revenue commissioner, told the chamber audience the previous administration had done a lot of work and developed a preliminary budget.
“But circumstances overtook the world and a lot of things happened ... primarily the commodities market was surprised when the Saudis didn’t drop their supplies” and determined instead “to wait out the high-cost producers.”
That occurred at the Nov. 27 meeting of the Organization of the Petroleum Exporting Countries, mere days before the Walker administration took over Dec. 1.
“So we needed to go back in, revise our numbers,” Davis said.
With the $5.9 billion unrestricted general funds budget already passed for fiscal year 2015 (which began July 1), a supplement of some $200 million was needed for oil and gas credits, bringing that number to $6.1 billion.
The forecast price of oil for FY 2015 is now $76, an average of the known price for the beginning of the year and a forecast of $64 a barrel for the rest of the fiscal year, she said.
“Our directions from Gov. Walker are to be accurate, to be conservative, to be as honest as we could about what we think the revenue ... is going to be,” Davis said. Using a 70 percent confidence level, the oil price is projected at $76 for FY 2015, $66 for FY 2016 and $93 for FY 2017.
Production volumes, she said, were not adjusted.
Open manner Office of Management and Budget Director Pat Pitney told the chamber the capital budget was reduced to a minimum - requirements and federal matching, calling it a zero capital budget that costs $100 million.
Pitney said solutions to meet the budget deficit need to be done in an open manner. She said the transition team was being reengaged to address the issue and said the administration would be asking for feedback from chambers of commerce, local governments and Native organizations.
We have to partner, she said: We all deliver services, and need to determine how we can deliver those services efficiently.
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