Alaska faces bleak fiscal future with COVID-19: ‘There is no good news out there’
With the impact of COVID-19, the State of Alaska’s fiscal outlook is bleaker than ever, making for an extremely tough budgetary environment when the Legislature next convenes.
Over the weekend, Alaska’s lawmakers passed
that requires spending over $1 billion from the Constitutional Budget Reserve, the state’s one remaining savings account.
Rep. Neal Foster, D-Nome, a co-chair of the House Finance Committee, said the CBR is expected to be left with roughly $450 million. Apart from filling fiscal gaps, the CBR is also used for the day-to-day functioning of state government.
“We need a billion dollars in that, that’s not sustainable,” Foster said about the smaller projected reserves.
The state’s economy is expected to be hit hard by the coronavirus. The Alaska North Slope oil price has been hovering at roughly $26, oil companies are slowing investment in the oil patch, the upcoming cruise ship season may be non-existent, and the fishing season is projected to be heavily impacted by COVID-19.
If the Lower 48 recovers faster economically than Alaska it’s also possible that out-migration will increase as people seek jobs Outside.
Larry Persily, a long-time oil and gas analyst, says there is not a lot of good news for Alaska before he corrects himself: “There is no good news out there.”
Alaska had been looking at a
but Persily says that’s virtually ensured to be wiped out. “It’s going to be a miserable financial year that’s going to extend into next year,” he said.
With savings virtually drained, Persily says the Legislature will need to have a serious discussion about new statewide revenues when it next convenes.
Sen. Bert Stedman, R-Sitka, a co-chair of the Senate Finance Committee, agrees that those conversations will need to take place. Stedman says the oil tax structure set up in 2013 made it inevitable that new revenues would eventually be needed as savings were drained.
COVID-19 just sped up that process. “The chickens are coming home to roost,” Stedman said.
There is one bright spot for Alaska. The state will see a
paid from the federal government to help cope with the impacts of the coronavirus.
Stedman says his aides are currently looking into the federal funding to see if there are strings attached to how it can be spent. On the fundamentals of Alaska’s economy, he says it’s not entirely doom and gloom.
Stedman says Southeast will be hit hard by COVID-19 by the loss of cruise ship and fishing revenue but he urges caution when looking at Alaska’s finances. “There is no reason to panic whatsoever,” he said, explaining that oil prices could just as easily rebound before December.
The Sitka Republican says he would much rather have Alaska’s finances than any other state’s: Alaska has minimal debt and the Permanent Fund is there to help fund state government.
Angela Rodell, the CEO of the Alaska Permanent Fund Corp., also urges caution. During the COVID-19 outbreak, the fund has seen some of its largest daily drops but at other times it has rallied.
As of March 30, the total value of the fund was $60.3 billion, a drop of nearly $5 billion in one month.
Making longer-term projections for the Permanent Fund is extremely difficult right now, Rodell said. She wants Alaskans to know that the fund’s managers are using low stock market prices to buy opportunistically and that the fund is invested for 5-10 years in the future.
For the long-term future of Alaska, tough discussions will be needed soon.
Lawmakers had planned to spend this session discussing changing the formula that calculates the Permanent Fund dividend but that was cut short with COVID-19. Bills that would have raised
advocated by the House minority and governor also didn’t advance.
Rep. Bryce Edgmon, I-Dillingham, says lawmakers will need to look into changing the PFD formula, making further budget cuts or implementing new revenues. The House Speaker says there isn’t an appetite to overdraw the Permanent Fund and that full statutory dividends need to be taken off the table.
“We can’t keep promising people full PFDs when we don’t have the cash to pay for them,” Edgmon said. “We don’t have the cash to have the current level of services and pay a full PFD.”
The Legislature is expected to reconvene later this year, in part to deal with parts of the capital budget that weren’t funded but also to help Alaskans coping with COVID-19. Edgmon says reconvening in Juneau could also be difficult if public health warnings continue.
That’s evidence of the health crisis facing Alaska, for Persily, he recommends that people across the state expect to see other big changes if the fiscal crisis continues.
“Alaskans need to look beyond today’s crisis,” he said. “This state’s going to be different, not bad but different and we need to accept that.”