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After all the wrangling over the state budget and extended legislative session and two special sessions, how much of the budget was really cut? Not much, it turns out. The figures are still being tallied but according to the Legislative Finance Division, the professional, and nonpartisan, financial analysis arm of the Legislature, the net state operating general fund reduction in Fiscal Year 2016 over the current FY 2015 is $161.23 million. The reduction in state agency budgets is estimated at $358.66 million, but when nexpenses like debt service on bonds and payments topension funds, which are obligated (and higher in FY 2016), then the savings shrinks.


Whatever figure is used seems like a drop in the bucket when compared with the $3.8 billion projected deficit for FY 2015 and about $3.2 billion for FY 2016. There will also be a separate savings from reduced

capital budget spending in FY 2016, from about $595 million to $118 million, but this $477 capital budget savings is largely a one-time deal that won’t be repeated next year. The FY 2016 $118 million capital budget is a bare minimum that mostly covers required matching for federal funds, and very critical repairs to state facilities.


As for state jobs, it will be a while before this is sorted out, state adofficials say. As a rough guide, it appears 500 positions will be affected in FY 2016 but some positions are vacant and others will be emptied by retirements and other voluntary departure. It’s possible that about 200 state workers might face actual layoffs, but it’s too early to say.


Here are totals for the budget, in unrestricted general funds: The FY 2016 total for state funds in the operating budget is $6.092 billion, compared with $6.195 billion in the FY 2015 current budget. The agency operating budget (excluding debt service, pensions and other items) is $4.896 billion, down from $5.254 billion. As we mentioned, the FY 2016 capital budget approved by lawmakers is $118.4 million, down from $594.6 million in the current FY 2015.

Gov. Bill Walker and House Speaker Mike Chenault are working to bury the hatchet, Chenault said Thursday morning (March 5). House leaders and the governor met for lunch on Wednesday and Walker invited Chenault for breakfast at the Governor’s Mansion Thurday morning for a one-on-one. The morning session was cordial, Chenault said.

Things went south  the relationship, which was already rocky, when Walker flew off the handle in a press conference last week over a bill House leaders introducing placing limits on the governor’s ability to spend money on expanding a state-led gas pipeline, the Alaska Stand-Alone Pipeline, or ASAP.  Walker impuned the character of House leaders, saying “who are they really working for?”, which brought a harsh response from legislators. Chenault said Thursday (March 5) he told the governor during the Wednesday lunch, “don’t ever say something like that again.”  Walker’s outburst the prior week is being laid to a quick temper and impulsiveness.  (See more in our next edition of Legislative Digest next Monday, March 9).

Gov. Bill Walker introduced his long-awaiting FY 2016 operating and capital budgets Thursday. These are the governor’s “amendments” to the existing budget bills before the House and Senate, which are templates based on the budgets developed by former Gov. Sean Parnell. Walker cut $132 million to reductions made in Parnell’s proposal. The total general fund spending reduction from FY 2015 is $240 million.

Gov. Bill Walker will introduce his long-awaiting FY 2016 operating and capital budgets on Thursday. These are the governor’s “amendments” to the existing budget bills before the House and Senate, which are understood as templates based on the budgets developed by former Gov. Sean Parnell.

Acting Revenue Commissioner Marsha Davis has been booted upstairs to the Governor’s Office to assist Chief of Staff Jim Whitaker. Davis will continue to live in Anchorage. Meanwhile, new Revenue Commissioner Randy Hoffbeck is back in state and has taken over the top job at Revenue.

Former state revenue commissioner Sterling Gallagher is now a Special Assistant for Finance in Gov. Bill Walker’s office. Gallagher said he will be taking a look at the investment performance of state assets, some of which have been underperforming, he said.

Lower oil prices are beginning to be felt in Fairbanks in lower heating oil prices–reported most recently at $3.40/gal. and headed down–and that is threatening to upend a plan to build a small liquefied natural gas liquefaction plant at Prudhoe Bay and to truck LNG to the Interior city. Cost estimates of the LNG project are rising, which is increasing the expected price of gas to consumers.

Delivered costs could now reach $18 to $20 per million British Thermal Units, up from the revised target of $15 (originally, the target was $12). A delivered-to-consumers gas price of $18/mmbtu correlates roughly to an oil cost of $2.40/gallon, and a $20/mmbtu price is about the equal of $2.70/gallon.

The three Interior utilities being asked to sign up to buy trucked LNG are now worried that fuel prices edging down from previous highs of over $4/gallon will hike consumer resistance to paying the hefty conversion cost from oil to gas. If that happens it will undercut the demand for gas, undermining the economics of LNG trucking.

Another complication is that Hilcorp Energy, which owns Cook Inlet gas ans is the new owner of a small LNG plant in the MatSu Borough (formerly owned by Fairbanks Natural Gas) has offered to sell Cook Inlet gas as LNG to Fairbanks for $15 per mmbtu. WesPac Midstream, which hopes to develop a medium-sized LNG plant at Port MacKenzie, says it can supply LNG for $14.50 although the company has yet to nail down a gas supply. REI Alaska Inc., developing a one million LNG plant in Cook Inlet for export, said it can also supply Alaskan markets including the Interior.

The sudden drop in crude oil prices, nearing $80 per barrel on Oct. 15, has sent shudders through the state government. Ironically, the Department of Revenue has just started work on the Fiscal 2016 production and revenue forecast, which will be published in late November or early December. The drop in oil prices, which may last a while, pundits say, would undermine current FY 2015 revenues and push the $1.4 billion deficit that was projected at a $104/barrel average higher. In previous years a rule-of-thumb was that each $1 drop in oil prices, if it stayed low for the year, cost the treasury $50 million. Revenue officials say that’s more complicated now with the new SB-21 oil tax in effect. We’ll have to wait a few weeks until the revenue forecast to glimpse the future. (More on this in our upcoming Alaska Economic Report).

Alaska North Slope oil producers appear to have halted a long-term decline in annual production, state production data showed.
For the first 10 months of the state’s 2014 fiscal year, production has averaged 532,700 b/d, data through April showed. Preliminary data for May and June indicates the trend is likely to hold.
Average production for the 2013 fiscal year was 531,600 b/d. The state fiscal year runs from July 1 through June 30.
The figures are subject to adjustment, said Cherie Nienhuis, a petroleum analyst with the Alaska Department of Revenue, but the data indicates the state will end its current fiscal year on June 30 with North Slope output roughly on par with the previous year.

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