Falling oil prices, lower production widen state’s budget gap

by The Associated Press

Falling crude prices could reduce revenues by as much as $300 million this budget year, forcing a larger draw on the state's financial reserves, Annalee McConnell, Gov. Tony Knowles' budget director, said Nov. 20.

Alaska's revenue has been slipping for a decade as North Slope oil production declines. Only twice in that period has the state covered its costs. The deficit sparks debate over budget cuts, taxes or taking money from the Alaska Permanent Fund.

On July 1, the Department of Revenue set its projected ANS West Coast price at $24.54 a barrel, but the price weakened and then plunged after Sept. 11. On Nov. 19, Revenue estimated an average price of $22.62 a barrel for the fiscal year.

State spending was expected to outstrip oil money and other revenues by $474 million; with falling prices, the budget shortfall could stretch to more than $750 million.

“We're revising downward. The question is how much,” Chuck Logsdon, Revenue's chief petroleum economist, told the Anchorage Daily News.

If the governors' 2003 fiscal plan is approved and prices remain low, draw on the reserve fund could be $900 million to $1 billion, exhausting the $2.8 billion fund by 2005.

“Falling oil prices move up the drop dead date,” said economist Scott Goldsmith of the Institute of Social and Economic Research. The state has two basic options for more money: taxes or tapping the state's $24.8 billion Permanent Fund.