Gov. Bill Walker released his battle plan Wednesday for dealing with the state’s behemoth budget deficit.
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The moves come as Alaska faces a budget shortfall of about $3.5 billion in the next fiscal year, because of the collapse in oil prices and a slide in crude production.
“This is a major paradigm shift in how the state of Alaska conducts business”, Mr. Walker, an independent, said in a news conference in the state capital, Juneau.
Alaska isn’t alone among oil-producing states to experience hard times as oil prices stay low.
Ordinarily, a state facing a budget crisis probably wouldn’t be particularly interesting to anyone outside that state, but Alaska is facing a unique set of circumstances.
The change would cut PFD checks by half next year, from an estimated $2,000 under the current system to about $1,000.
State Sen. Pete Kelly (R), who co-chairs of the state Senate’s Finance Committee, responded to the governor’s plan in a statement that said, “I wish I had some pithy comment to express my disdain for taxes, but I don’t”. He also proposes phasing out half a billion dollars in tax credits available to the oil and gas industry. “We’re not sure we’re there yet; there’s room for more cuts”, he said in a release.
However, if the state keeps drawing down its savings like it is and makes no changes, Walker says the dividend would end in 2020.
The oil-dependent state has been using savings to help balance its budget.
Meanwhile, the head of the International Energy Agency expects oil prices to remain low next year as demand weakens and supply remains high. A dividend will still be paid according to reports, but 2016 payouts are expected to be $1000 less than last years $2072.
Earnings generated from the fund are used for inflation-proofing and paying the annual dividends. Walker is proposing about $100 million in new cuts and $360 million in new taxes.
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While permanent fund earnings can be used for the state budget, legislators have been loath to go there for fear of being accused of “raiding” the fund.
