November 22, 2015


Alaska Would Rather Go Broke Than Pay Taxes (BEN CASSELMAN, 11/21/15, 538)

Faced with falling oil production, low crude prices and billions of dollars in deficits, state leaders are considering once-unthinkable changes to the way the state raises and spends its money. In coming weeks, Gov. Bill Walker, a political independent, will likely propose a cut to annual oil payments, the imposition of a new broad-based tax and tens of millions of dollars in cuts to state services. But it remains to be seen whether Alaska voters -- and the legislators who must face them in November -- will accept the need for such radical steps. If they don't, experts on both ends of the political spectrum agree, the eventual reckoning will be far greater.

Alaska's finances are unlike those of any other state. It has no income tax, no statewide sales tax and among the lowest per capita tax burdens in the U.S. Instead of from taxes, its money comes overwhelmingly from two sources: oil revenue, which provides close to 90 percent of the discretionary budget, and federal funds, of which Alaska has historically been among the top per capita recipients.1

Revenues have slumped along with oil prices, however. In fiscal 2012, when oil prices spent much of the year above $100 a barrel, general fund revenues topped $7 billion. This year, with oil prices down to about $40 a barrel, the state expects to collect just $2.2 billion. Even after billions of dollars in budget cuts in the past two years, the state still faces an estimated $3 billion shortfall heading into the next fiscal year.


Alaska's problems go beyond oil prices. Federal funding has fallen since stimulus funds dried up after the recession, and the state's influence in Washington has waned since the electoral defeat of longtime U.S. senator Ted Stevens in 2008. The prices of other natural resources, such as gold and salmon, have also declined. Most significantly, the state's oil production has been falling for decades, dropping below 500,000 barrels per day in 2014 from a peak of more than 2 million barrels per day in the late 1980s. Lower production means it takes higher prices to generate the same amount of tax revenue; the state estimates that it would take prices of $110 a barrel or more to balance the state budget at current production levels.

Making matters more difficult: Alaska may be entering a recession, if it isn't in one already. "It's at that point where my gut says we're tipping toward recession," economist Jonathan King of Anchorage consulting firm Northern Economics said earlier this week.

As Paul Ehrlich and Stephen Harper have already demonstrated, you should never bet against falling commodity prices.

Posted by at November 22, 2015 5:55 PM