How Low Can Essential Services Go Before We Seek New Revenues?

Alaska Department of Revenue Commissioner Randy Hoffbeck shared that he and the Governor both agree that before any discussions on revenues occur spending must be reduced. The State must show that the size of government is right before asking Alaskans to weigh in on the revenue discussion.

The State is not able to cut its way to a balanced budget. There simply is not enough slack in the budgets without cutting essential services such as education, health and safety and public safety.

When adjusted for inflation and population, the current budget is lower than most years during the post-pipeline boom. In comparison to other states, Alaska’s total expenditures by population ranks very low.

There is little chance higher oil prices or production will create a balanced budget. At the current rate of production, the price of oil would need to be over $110 to reach $5.2 billion, which is the current size of the unrestricted general budget. If oil stays at the current price of about $60, even an increase to 800,000 barrels per day would only raise $2.9 billion in revenue. Skyrocketing prices and doubling production is not likely in the near future. Many predict that prices will rise, but not much about the $80 mark and while production decline has slowed, it will not increase significantly in the near future.

Commissioner Hoffbeck introduced the Revenue Model that is being used to show the different options for spending cuts and increased revenues. The model puts into perspective how much is needed to create a balanced budget. There is no ‘magic bullet’ for a balance budget and a viable solution will take discussion and compromise from state government and citizens. Alaska currently has the lowest tax burden per capita and a frank discussion will be necessary before moving forward with any tax that affects individuals.

See budget options outlined in this story at Alaskanomics