Behind Alaska’s Big Fight Over Oil Money (Its Oil Revenue Declined 50% in 2015, and Its Oil Production Continues Declining)

[Tom Kirkman + 8,860]

A U.S. microcosm analogy of the OPEC countries' oil revenue problem, which blew up in 2015.

What to do when State expenses exceed oil revenues (which depend on oil revenues?)

Obviously, the U.S. state of Alaska is far different than an OPEC dictatorship country that relies 90% upon oil revenues, but the budget problem is similar...

What do leaders do when State expenses which depend upon oil revenue exceed the income from oil revenue?

Clearly, Alaska is not going to start a war with neighboring State Russia in order to jack up oil prices (like some State actors in OPEC seem willing to do with their neighbors).

My guess is Alaska leaders will continue to kick the can down the road and wish and hope that they will be re-elected so they can continue to kick the can down the road and then be re-elected ad infinitum.  Hey, can-kicking and false political promises work for political leaders in Chicago, Baltimore, San Francisco, etc. so why not Alaska, right? 

(That's tongue in cheek, please don't assume this is my solution.  The real solution is to cut expenses to match oil revenues in order to balance the budget.  Which will never, ever happen.  Cue continuation of can-kicking... and indefinite re-elections of politicians, of course.)

Pay attention to the 2 graphs below, especially the 2nd graph.

 

(Lengthy excerpts below, as Bloomberg is a partial paywall.)

Behind Alaska’s Big Fight Over Oil Money

For decades, the state paid its bills through a natural-resource windfall. Now the money’s running out.

The state of Alaska is in the middle of a big budget fight. In late June, the state’s new Republican governor used a line-item veto to slice more than $400 million in spending out of the $8.7 billion state operating budget. By far the biggest cuts fell on the three-campus University of Alaska system, which would lose 41% of its state funding. Last week the majority-Republican state legislature passed a bill to restore most of this money. The governor has signaled that he’ll veto that legislation, too, and nobody seems to know exactly what will happen after that. Meanwhile, critics of the governor have launched a recall campaign.

Many of the details here (such as the fact that the Alaska House of Representatives, while mostly Republican, is led by a majority coalition composed mostly of Democrats) involve quirks of Alaska politics that I’m not really the guy to explain. But the clearest reason why the state is having these budget troubles — and it’s been having them for a while — is that its revenue from oil and gas taxes and royalties fell by 50% in 2015, and has recovered only slightly since:

 

Instead of paying taxes to fund state government, Alaskans have since the early 1980s been able to rely upon taxes and royalties from North Slope oil and gas production to pay for both (1) state government and (2) a sort of universal basic income for residents, with “dividend” checks averaging an inflation-adjusted $1,718 a year since 1982. Alaska levies no statewide property, sales, or personal income taxes, has the lowest state and local tax burden of any state, spends more per resident than any other state government and has over the past four decades relied on oil and gas for 83% of the unrestricted state general fund revenue with which most state operations are funded. But since 2015, the oil revenue hasn’t been nearly enough to pay the bills.

Oil prices have been a big part of the story. They hit an all-time high in 2008, plummeted at the end of 2014, and have recovered only partly since.

But the underlying problem is that Alaska isn’t producing nearly as much oil as it used to.

 

... Regardless of what happens next, Alaska’s current budget struggles illustrate the downsides of relying on a natural resource windfall to pay ongoing bills.  ...

 

[Zhong Lu + 845]

It's not just Alaska.  The entire US government (especially when controlled by Republicans) is living on borrowed money and kicking the can down the road on the deficit.  

I mean, as long as there's people buying Treasuries it's not a problem. But what if they stop? 

Edited August 7, 2019 by Zhong Lu

[Douglas Buckland + 6,308]

13 hours ago, Tom Kirkman said:

A U.S. microcosm analogy of the OPEC countries' oil revenue problem, which blew up in 2015.

What to do when State expenses exceed oil revenues (which depend on oil revenues?)

Obviously, the U.S. state of Alaska is far different than an OPEC dictatorship country that relies 90% upon oil revenues, but the budget problem is similar...

What do leaders do when State expenses which depend upon oil revenue exceed the income from oil revenue?

Clearly, Alaska is not going to start a war with neighboring State Russia in order to jack up oil prices (like some State actors in OPEC seem willing to do with their neighbors).

My guess is Alaska leaders will continue to kick the can down the road and wish and hope that they will be re-elected so they can continue to kick the can down the road and then be re-elected ad infinitum.  Hey, can-kicking and false political promises work for political leaders in Chicago, Baltimore, San Francisco, etc. so why not Alaska, right? 

(That's tongue in cheek, please don't assume this is my solution.  The real solution is to cut expenses to match oil revenues in order to balance the budget.  Which will never, ever happen.  Cue continuation of can-kicking... and indefinite re-elections of politicians, of course.)

Pay attention to the 2 graphs below, especially the 2nd graph.

 

(Lengthy excerpts below, as Bloomberg is a partial paywall.)

Behind Alaska’s Big Fight Over Oil Money

For decades, the state paid its bills through a natural-resource windfall. Now the money’s running out.

The state of Alaska is in the middle of a big budget fight. In late June, the state’s new Republican governor used a line-item veto to slice more than $400 million in spending out of the $8.7 billion state operating budget. By far the biggest cuts fell on the three-campus University of Alaska system, which would lose 41% of its state funding. Last week the majority-Republican state legislature passed a bill to restore most of this money. The governor has signaled that he’ll veto that legislation, too, and nobody seems to know exactly what will happen after that. Meanwhile, critics of the governor have launched a recall campaign.

Many of the details here (such as the fact that the Alaska House of Representatives, while mostly Republican, is led by a majority coalition composed mostly of Democrats) involve quirks of Alaska politics that I’m not really the guy to explain. But the clearest reason why the state is having these budget troubles — and it’s been having them for a while — is that its revenue from oil and gas taxes and royalties fell by 50% in 2015, and has recovered only slightly since:

 

Instead of paying taxes to fund state government, Alaskans have since the early 1980s been able to rely upon taxes and royalties from North Slope oil and gas production to pay for both (1) state government and (2) a sort of universal basic income for residents, with “dividend” checks averaging an inflation-adjusted $1,718 a year since 1982. Alaska levies no statewide property, sales, or personal income taxes, has the lowest state and local tax burden of any state, spends more per resident than any other state government and has over the past four decades relied on oil and gas for 83% of the unrestricted state general fund revenue with which most state operations are funded. But since 2015, the oil revenue hasn’t been nearly enough to pay the bills.

Oil prices have been a big part of the story. They hit an all-time high in 2008, plummeted at the end of 2014, and have recovered only partly since.

But the underlying problem is that Alaska isn’t producing nearly as much oil as it used to.

 

... Regardless of what happens next, Alaska’s current budget struggles illustrate the downsides of relying on a natural resource windfall to pay ongoing bills.  ...

 

I see significant taxes in Alaskan's future. This is going to be a bitter pill to swallow for Alaskan's. Welcome to our nightmare.