State faces massive budget shortfall from coronavirus-impacted oil price crash
Lawmakers are facing a stark fiscal reality from a coronavirus-impacted oil price crash.
On Wednesday, the House Finance Committee got an update on the state’s finances.
Pat Pitney, the director of the Legislative Finance Division, said with a status quo budget, lawmakers are facing a $300 million deficit before paying a Permanent Fund dividend next year. With a $1,000 dividend, the deficit balloons to over $1 billion.
projects that hundreds of millions of dollars will be wiped from the state’s balance sheet, largely due to an ongoing crash in the price of Alaska North Slope oil.
Pitney said the Revenue Department’s forecasts for oil production and prices are likely optimistic, meaning the state’s deficit would be even larger.
With falling oil prices and production, earnings from the Permanent Fund to pay for state services will be increasingly important for the state budget. According to the latest figures, Pitney said that Permanent Fund earnings pay for roughly 75% of state government.
Legislators have few options to bridge the fiscal gap. Under current projections, the Constitutional Budget Reserve, the state’s one remaining savings account, will be functionally empty by next spring.
the Permanent Fund has its consequences. According to the Legislative Finance Division, taking $1 billion out of the fund means the state won’t be able to earn $50 million per year, forever.
The fiscal gap will likely be addressed in multiple ways, including spending cuts, new revenues and reducing the size of the annual PFD paid to Alaskans. “Changing the dividend formula is not enough to close the structural deficit,” Pitney said.