Even with major budget cuts, the state could see its credit rating dropped if it doesn’t take steps to address revenues, Gov. Bill Walker’s budget director, Pat Pitney, told state lawmakers on Monday.
But a member of the Senate Finance Committee said with elections next year, legislators may be hesitant to “go that extra distance” to cut the budget or to take steps to increase state revenues or tinker with the Permanent Fund.
During a committee hearing in Fairbanks, Sen. Lyman Hoffman, D-Bethel, said his greatest concern is that politics will interfere with addressing Alaska’s budget situation. Drastic measures need to be taken within the next 24 months, he said.
Alaska relies heavily on oil revenues to fund state government and faces multibillion-dollar deficits amid low oil prices. The state is using savings to help balance the budget. Depending on factors like the price of oil and state spending, the constitutional budget reserve fund, from which money currently is being drawn to cover costs, could be depleted in the next few years.
The state has other pots of money that could be accessed, such as the Permanent Fund earnings reserve account, but doing so could prove politically tricky. The Department of Revenue, in a paper on potential fiscal and revenue options released earlier this year, said that with oil prices projected to remain low over the next few years, “it is essential that revenue discussions include the prudent use of Permanent Fund earnings.”
Legislation to address oil and gas tax credits is expected during the next session, Pitney said.
Pitney said agency spending is only one piece that needs to be considered and cuts alone won’t erase the deficit. The administration has been holding meetings around the state to help Alaskans understand the situation and to lay out possible options. Preserving the state’s credit rating is of particular concern as the state pursues a major liquefied natural gas project.
Pitney told the committee the administration is shooting for around mid-October to release a preliminary budget pan.