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Fiscal New Year Starts With Low Income

By | June 29, 2012

The new year arrives this coming Sunday.   That’s the fiscal new year for most businesses and for the state.  The budget the legislature passed during this year’s session will also go into effect over the weekend.   And the people who are already at work writing the budget for next year are keeping a careful watch on the effects of low oil prices.

Alaska’s fortune rises and falls along with the price of oil and the amount of the state’s most profitable resource that is produced.   Oil prices hovered at less than a hundred dollars a barrel most of June – a price level that is lower than anticipated, but still comfortable for state revenue needs.   Karen Rehfeld is Director of Management and Budget for the Parnell administration.

We’re still projecting a considerable balance at the end of FY12 that would go into the statutory budget reserve and we believe that will still be the case.

Legislative sources expect the most easily accessible account will have about $5-Billion when it’s all counted in the coming months.

However,  bills that come due Monday morning will be seen in a different light.  Where the budget’s breakeven point for 2012 was about $85 a barrel,  a $93 oil market price is good.  But with the 2013 budget’s breakeven point of $104 a barrel , that same price is troubling.   Bill Thomas of Haines is co-chairman of the House Finance Committee and is responsible for writing the operating budget.

What I would consider our biggest fear is Reality.  So there’s a lot of things people think we should have added that we probably can’t afford to do now.

However, it’s an annual budget – and the price of oil that matters is the average price over the course of the coming year.  Rehfeld says the state is not short of cash,  but the balance warrants watching between now and December when the budget for 2014 will be released.

Given the volatility and what we’ve seen at these prices it’s hard to say at this moment whether we would be in a situation of having to draw on reserves in FY 13.

Thomas says legislators have been warning for several years now that high income – with accompanying budget surpluses – will not last.  And he says budgets have minimized growth and included savings with the expectation that it would someday be needed to cover a shortfall.

We have money all over the place.  It’s hard to figure out exactly what we have.

The worst scenario would see both prices and production continuing to fall.   The June average production was about 520-thousand barrels a day – in a line built to carry four times that amount.  Rehfeld says low prices heightens the awareness of low production.   Thomas agrees,  saying he’s looking for a new incentive program from the governor that would increase production.

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