Does Alaska have a revenue problem or a spending problem?
As is often the case, the answer probably lies somewhere in the middle.
The revenue problem is no secret: A precipitous fall in Alaska North Slope crude price from a $102 per barrel average in August to a $49 per barrel average in January has placed a state that has left itself reliant on oil for income in a major bind.
Prices have pretty much stabilized so far in 2015, but some oil industry analysts have said the bottom of the canyon could ultimately be in the $20 per barrel range, with a slow climb out over several years.
That paints a bleak picture for a state that draws 90 percent of its revenue from black gold.
The Fall 2014 Revenue Forecast from the state Department of Revenue projects Alaska’s general fund will take in a little more than $2.55 billion this fiscal year and a measly $2.2 billion in fiscal year 2016. The state is expected to run budget deficits in the $3.5 billion-plus range over the next couple fiscal years as a result.
Revenue’s predictions make 2011-13 revenue — $7.71 billion, $9.92 billion and $7.6 billion — seem like ancient history.
The good old days of billion-dollar capital budgets while still putting money in the bank are long gone.
Comparisons with the 1986 oil price collapse have been made from Ketchikan to Kotzebue. However, that was a boom-and-bust scenario, which state economists say isn’t very analogous to today.
In the mid-2000s, prices hovered roughly between $40 and $50 per barrel for Alaska’s traditionally light and valued oil and the state took in about $3 billion per year.
Since early 2006, when Alaska North Slope crude, or ANS, pushed above $60 per barrel and began a steady and only briefly interrupted climb, the per barrel price has spent more time at or greater than $100 than $50. The state’s general fund spend has followed suit, regardless of the governor.
Capital budgets come and go mostly at the whims of the Legislature, but the operating budget is always there to demand money.
In fiscal year 2006, the State of Alaska operating budget included a $2.7 billion total draw from the general fund. By fiscal year 2013 — when the state was flush with cash after nearly $10 billion in general fund revenue in 2012 — the general fund operating budget had grown to $6.42 billion, according to state fiscal summaries.
In excess of $2 billion of federal money and money from other funds meant for predetermined uses makes up the rest of the operating budget each year.
The growth equates to a 137 percent increase in the state’s controllable portion of the operating budget.
By comparison, the state’s population grew 9 percent and inflation increased 17 percent over the same seven-year period from 2005-2012.
Since then, big budget spending has backed off to just more than $6 billion the last two fiscal years.
The state held about $15.6 billion combined in its Constitutional Budget Reserve and Statutory Budget Reserve funds at the beginning of this fiscal year last July 1.
Because forecasting revenue in the out years relies so much on oil prices, models vary, but most experts agree the state will completely drain its savings accounts before 2020 on its current spending and revenue path.
The operating budget passed by the House March 13 includes $5.31 billion from the general fund. That legislation is now being vetted by the Senate. Gov. Bill Walker’s budget proposal has a $5.5 billion general fund spend.
The governor’s operating budget proposal would be an 8 percent cut in general fund spending from the current fiscal year 2015 budget.
Walker has said he hopes to cut government agency spending by up to 25 percent during his four-year term.
Where is the money going?
Nearly half of the 2015 general fund appropriation went to the state departments of Education and Health and Social Services.
Combined, they accounted for $2.68 billion, or 44 percent, of the $6.01 billion spend for the current budget cycle.
Driven by Medicaid costs, the Department of Health and Social Services general fund appropriation has grown 107 percent in 10 years to $1.25 billion today.
*Projected revenue. Source: State of Alaska
Gov. Walker submitted legislation March 17 to reform the state Medicaid system and expand it primarily with federal money. Republican leaders in the Legislature have said they are worried the cost burden of expanding Medicaid could eventually be shifted to the state and not make it as sweet of a deal as advertised. They have also said reforming the current system is paramount before accepting new money.
The general fund portion of the Department of Education and Early Development’s budget stands at more than $1.41 billion, up almost 60 percent from $890 million in fiscal year 2006. Those numbers are slightly deceiving, because most, but not all of that money gets spent every year, according to Education Department officials. What is not eaten up by school grants is rolled over to the next fiscal year budget.
The Base Student Allocation — the formula by which schools are funded per student — has barely kept up with inflation over that period. It increased 15 percent from fiscal year 2006 to 2014.
Interestingly, while the overall state Education budget has grown 58 percent in the last decade, the number of K-12 public school students has done the opposite. During the 2005-06 school year about 131,300 youngsters attended public school in Alaska. By the fall of 2014 that number was down to 128,800 students.
The University of Alaska System comes in third on the State of Alaska’s general fund spend list. In fiscal year 2015 the state universities got $375.8 million. That same budget line was $282.5 million in 2007, according to UA budget records, a 33 percent increase.
The Board of Regents requested a $395.7 million operating subsidy from the Legislature for the 2016 fiscal year at its November meeting.
Walker’s budget proposal would give $362 million to the university system; the House has $344 million for direct higher education funding in its version of the 2016 budget.
Public employee contracts are always a contentious topic in tight budget times.
Since 2006, the amount the state spends on executive branch employee wages has increased 40.6 percent, according to annual workforce reports put out by the Department of Administration.
The total number of department employees has grown a little more than 8 percent over 10 years, slightly less than the state’s overall population increase of 9 percent.
In fiscal year 2006, the average state agency employee earned $49,932 per year; in 2014, their yearly earnings averaged $64,884, a 30 percent increase.
Comparatively, Alaska’s entire workforce, including state employees, had an average annual income of $42,740 in calendar year 2005, according to the U.S. Bureau of Labor Statistics. Alaska’s fiscal years begin on July 1.
By 2013, the average Alaskan made $53,110, a 24 percent increase from 2005.
With benefits included, the state spent about $1.57 billion on its executive branch workforce in 2014, according to the Department of Administration.
Where do we go from here?
Rep. Lora Reinbold, R-Eagle River, got thrown out of the House Majority Caucus March 16 for not playing by the rules — for wanting more budget cuts than her mostly Republican and now former caucus mates agreed to.
Reinbold broke ranks and protocol by voting against the House operating budget passed March 13 because she said it does not do enough to close the state’s budget gap.
She said that cuts made in committees were a good start, but they started to evaporate when her colleagues took them up on the House floor.
“When I saw them bragging about amendment after amendment after amendment after amendment — putting things back in (the budget) — that caused me to lose faith in the shell games that were going on,” Reinbold said in an interview March 17.
At left, Rep. Lyn Gattis, R-Wasilla, and Rep. Lora Reinbold, R-Eagle River, congratulate each other on their 2012 primary election wins. Reinbold was booted from the House Majority Caucus March 16 after breaking ranks to vote against the operating budget.
Her view of a responsible budget when revenues decline is one that matches annual revenue plus 10 percent of the state’s savings, she said. That would mean roughly a $3.75 billion general fund appropriation to the fiscal year 2016 budget, based on Department of Revenue projections.
During times of plenty, Reinbold would like to see 10 percent of revenue banked.
To accomplish her goals the state needs to evaluate all spending “with parameters of sustainability” she said.
Reinbold suggested pay, hire and travel freezes for state employees in the coming years and stringent employee performance evaluations for state workers. She also said public union contracts need to be negotiated in public because they spend public dollars.
Revising state employee contracts would help solve the university’s budget problems as well, she said.
“When I asked (UA President) Pat Gamble, ‘What’s the number one thing that needs to be addressed?’ Pat Gamble said union contracts,” Reinbold recalled.
Contracts for three of the states largest labor unions will be up for negotiation by the end of 2016. One of those is the Alaska State Employees Association, which has 9,000 general government employee members.
ASEA Executive Director Jim Duncan said his members are realists and understand the that there will be little money available for wage and benefit increases when they begin negotiations in November.
He said the union conceded significantly in its current three-year contract: modest 1 percent wage increases in 2013 and 2014 and a 2.5 percent wage increases this fiscal year. Also, he said benefit contribution hikes were mitigated.
The state places $1,389 per employee per month in an ASEA benefit trust that is managed by a union-elected board, which selects benefit plans for its members. That same amount is contributed to several other unions as well.
“We negotiated with the Parnell administration and we gave up lots,” Duncan said.
After announcing layoffs to about 300 positions, Walker said in early February that he does not want to place the budget strain “on the backs” of State of Alaska employees through concessions.
The union expects its 2015 wage increase to be honored and Duncan expects further layoffs given budget projections, he said.
Duncan said wage rollbacks would be counter-productive, but noted wage freezes are
“We clearly expect that when we go back to the table in November 2015, that there’s not going to be much available as far as wage increases or benefit increases or anything in that regard,” he said.
Elwood Brehmer can be reached at [email protected].