- Associated Press - Monday, March 7, 2016

Here is a sampling of editorial opinions from Alaska newspapers:

March 6, 2016

Fairbanks Daily News-Miner: Time to act on Alaska’s state budget

The Alaska Legislature is midway through its annual 90-day session and working with diligence, we hope, on a way out of the state’s untenable financial situation.

An expected $3.5 billion shortfall in the current fiscal year and projected similar deficits in coming years should, of course, be getting their full attention. On the surface, that seems to be the case so far this session.

But the Legislature has had some history of dawdling and dithering when confronted with major fiscal problems. Alaskans should keep pressure on their elected officials to solve the problem, which may require individual lawmakers to go against the instinct to put personal political survival ahead of what is best for the state.

Former Gov. Frank Murkowski eventually paid the price for acting boldly starting in 2003, just four months after taking office. His first budget, for example, proposed elimination of the Longevity Bonus, a popular program that provided annual payments to some of the state’s seniors.

The state was facing a $1 billion deficit at the time - small compared to today’s shortfall - and the price of oil was at $36.34 per barrel. The price of a barrel of oil this week, by the way, is roughly the same, hovering around $34 after tumbling from around $100 a year and a half ago.

At the time, Gov. Murkowski began by also proposing the elimination of 20 other programs, about 200 state jobs, a 25 percent cut in revenue sharing to local governments, and $113 million in new taxes and fees. On taxes, he proposed the Legislature choose from a $100 school head tax per person working in Alaska or a seasonal sales tax.

A year later, things hadn’t gotten any better. The deficit had grown, approaching $2 billion. Things were getting so bad that Gov. Murkowski himself, in an unusual move, went to the Legislature and testified in front of the Senate Finance Committee to get lawmakers to act quickly.

By early 2005, however, the financial pressure had eased and the drive toward the needed major long-term change of the state’s financial structure stalled. Oil prices had risen to about $50 a barrel, and a state budget surplus was actually expected for the following fiscal year.

One Fairbanks legislator at the time had it absolutely correct when he urged a reality check in viewing that surplus.

“To me, it doesn’t free us up at all,” Republican Rep. Jim Holm said in a Daily News-Miner story about the projected surplus. “It’s just a lucky bubble, just a blip on the screen.”

Alaska would have been better prepared to deal with the current collapse in the price of oil had the state’s leaders restructured the state’s finances years ago - even over the objection of Alaska residents, who have had a tendency to put their love of the annual Alaska Permanent Fund dividend ahead of what’s best for the state.

The evidence continues to mount that legislators, the governor and the public need to act now to save the state.

The latest acknowledgment of this fact comes again from the respected Moody’s Investors Service, which has downgraded the state’s credit rating two months after issuing a report expressing high concern about the state’s financial situation. The Moody’s downgrade follows a downgrade by Standard & Poor’s earlier in the year.

The Moody’s downgrade contained a blunt and disturbing assessment of the state.

“The downgrade to Aa1 reflects the heightened volatility in Alaska’s revenues and the unprecedented structural imbalance caused by it. The state’s financial reserves are large, but recent budgets have been calibrated to oil prices above $100 per barrel, not prices forecasted to be less than half that though the next four years. Even with significant spending reductions, recurring revenues cannot keep pace with recurring expenditures, and the state would deplete its main budgetary reserves by fiscal 2019, absent significant changes in its financial framework.

“The negative outlook reflects ongoing stress in Alaska’s economy and finances caused by extraordinary revenue volatility, with oil prices well below prior forecasts. Absent significant changes, low oil prices will continue to cause large budget deficits, reserve draws, and structural budget gaps of an unprecedented size for a U.S. state.”

Alaska cannot cut its way out of this latest budget deficit. Nor can it cut its way out of the certain subsequent shortfalls. Yes, it’s correct to continually review state spending and to be frugal, but there comes a time when the need to raise significant new revenue is necessary and when the resources of the Alaska Permanent Fund must be used.

That time is now.

State leaders must act in a bold and comprehensive way. And Alaskans need to support them.


March 4, 2016

Fairbanks Daily News-Miner: Pipeline settlement provides certainty

It’s often said that good compromises leave everyone equally unhappy. That may be the case with the recently approved trans-Alaska oil pipeline valuation settlement between municipalities along the pipeline’s route and the companies that own it. The settlement will hold the assessed value of the pipeline at $8 billion for the next five years, less than its most recent valuation but not so much so that it will drastically affect the share of property taxes borne by local homeowners and small businesses. While the municipalities may have left some money on the table this year in avoiding a court fight over the pipeline’s value, they have secured a stable valuation for several years to come at a time when both the municipalities and oil companies are in need of fiscal certainty.

Arriving at the pipeline’s value has always been a contentious process, often with overlapping court cases that saw prior years’ taxes placed in escrow as the dispute wound through the justice system. It was a high-stakes battle, particularly for municipalities, which have far less capacity for legal staffing than do the four companies that own the pipeline - BP, ConocoPhillips, ExxonMobil and Unocal Pipeline Co. The line owners would low-ball the valuation, claiming a value as low as $800 million. The municipalities would aim far higher, sometimes in excess of $15 billion. The State Assessment Review Board would weigh in with a number in between, and the matter would ultimately end up in the lap of the Alaska Supreme Court.

While that process was fruitful for the municipalities, resulting in valuations close to $10 billion for the pipeline for the last two years, it was also one fraught with consequence.

If at any point the state Supreme Court accepted the arguments of the oil companies and lowered the valuation significantly, it would add a significant burden to local homeowners and small businesses, since the pipeline is by far the largest single property tax revenue source in the borough. And that lower valuation could have set a precedent going forward, meaning that future years would see the same valuation or less as production declined and assets depreciated.

While the municipalities and producers rarely see eye to eye, the recent slump in oil prices made both sides more amenable to a compromise than they had been in previous years. With the state squeezed and looking to cut funding to local priorities, the boroughs needed an assured revenue stream that wouldn’t fluctuate as state funding levels might. And with profits far lower than they have been for several years, producers were interested in fiscal certainty that would both somewhat reduce the pipeline’s valuation from previous levels and provide their companies fiscal certainty with regard to operating one of their biggest assets.

The pipeline valuation settlement may not be the highest value municipalities could have extracted for the trans-Alaska oil pipeline. But in uncertain fiscal times and with oil prices and production slumping, it will offer some measure of stable revenue for the borough. What’s more, it will free up borough legal staff formerly consumed by the high-stakes fight to focus on other matters of legal importance. Kudos to the municipalities and producers for coming to the table and gaining some fiscal certainty in an uncertain time.

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