As the Alaska Legislature weighs passing the budget and coronavirus relief in the coming days, lawmakers are considering how to pay for them.
The recent collapse in oil and stock prices raise questions about everything from the size of permanent fund dividends to the future of state finances.
The price of Alaska North Slope oil has plummeted to $23.91 per barrel on Wednesday. On Feb. 20, it was $57.20 per barrel.
This kind of price drop has happened before, noted Pat Pitney, director of the Division of Legislative Finance, the nonpartisan office that analyzes the state budget for the Legislature.
“We had a similar oil price crash in 2014,” Pitney said. “The state was in a very different position at that time. We had $16 billion in our savings accounts, plus a growing permanent fund.”
That $16 billion will be down to $1.6 billion in July. That’s because the state’s been taking money out of reserves for the last six years. And the oil price drop means less oil tax money for the state, forcing the state to make more draws from savings this year.
“At this low-price environment, we’re all impacted,” Pitney said, adding: “With the coronavirus: We can’t ignore the economic impact of that.”
Gov. Mike Dunleavy and the Legislature are seeking to respond to the virus, potentially with economic stimulus.
A major question is how this will affect the dividend. Legislative Finance projects a deficit of $192 million next year, even if the state had no dividend at all.
It’s already clear that the state wouldn’t have enough money in the Constitutional Budget Reserve to pay the roughly $3,000 dividends using the formula in state law.
The debate over dividends is being pulled in two directions: On one hand, there’s less money available for dividends than there has been in a long time. On the other, there’s a potential benefit to putting cash quickly into the pockets of Alaskans, many of whom are losing their jobs.
Anchorage Republican Rep. Lance Pruitt said some Alaskans — including lawmakers — want to pay back money cut from earlier dividends to balance the state’s budget.
“I’ve had people flat-out ask me, ‘Is it time to give the back dividend?’” Pruitt said.
As lawmakers look to pay for dividends and COVID-19 response funds, the Alaska Permanent Fund is a potential source. But the fund’s earnings reserve is more strapped than it has been in years. Including current plans for draws and transfers, the balance available could be as low as $5.1 billion in July.
Pitney said lawmakers face multiple challenges.
“I think everyone is very conscious of making sure we come out of this well and focused on solutions together,” Pitney said.
It’s not clear how quickly the session will end.