We provide an update of the FY 2016 budgets actions (lower item this page).

Both the state House and Senate have passed their versions of the FY 2017 state operating budget and both make several hundred millions of dollars in cuts from the current FY 2016 spending. But with about a month remaining before the Legislature’s scheduled April 17 adjournment, several big spending issues are still unresolved that will affect the final bottom line: (1) A budget figure for oil and gas tax incentive payments, which depends on what happens to House Bill 247, now being worked in the House Resources Committee; (2) payments on state teachers’ and public employees’ pension liabilities; (3) certain education programs.

How these will come out remains to be determined, but overall, House and Senate leaders are hoping to keep the FY 2016 budget including a bare-bones capital budget at about $4.5 billion. A big unknown is what the spring revenue forecast update will say. The assumed oil price will surely be lower than used in the December, 2015 forecast ($49 per barrel). Some House leaders are working under an assumption that FY 2017 oil revenues may drop to $1.2 billion to $1.5 billion, down from about $1.8 billion estimated in December. If revenues are $1.5 billion and spending is $4.5 billion, that’s a $3 billion draw from reserves. While that’s steep, it would be better than the $4 billion assumed widely since the session began in January. Meanwhile, there’s no sense yet on what legislators may do about new revenues. Passage of any several tax bills proposed is unlikely, but some use of Permanent Fund earnings may be devised. More to come on all this.  (See our weekly Legislative Digest edition for more).

The state Legislature convened its 2016 regular session Jan. 19 amid fresh concerns about plummeting oil prices and state revenues. It’s isn’t a pretty picture: Back-to-back $3 billion-plus budget deficits and draws from state cash reserves.

If there’s a silver lining it is this: Pressure is growing on legislators to adopt a fiscal plan, tapping other resources, such as investment earnings, to offset lower oil income. Several Senate leaders have endorsed the idea of using Permanent Fund earnings, but the House has yet to grapple with this (there are internal problems). Use of Fund earnings would come this year, under the current thinking, with modification of the Permanent Fund Division and possible taxes considered next year, after the 2016 elections. (See more in our published Legislative Digest. (Contact us at timbradner@pobox.alaska.net to inquire.)

State Attorney General Craig Richards unveiled Gov. Bill Walker’s new fiscal plan, in concept form, in a Oct. 28 briefing to legislators in Juneau. Essentially the plan calls for bulking up the Permanent Fund by transferring in other state savings accounts like the Constitutional Budget Reserve and also having certain oil revenues flow to the Fund instead of to the state general fund. The bulked-up Fund would then be managed like one of the large endowments that fund major universities and foundations.

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Alaska gas producers are considering expanding the pipeline size for the planned $50 billion-plus Alaska LNG Project from 42 inch to 48 diameter pipe, Gov. Bill Walker said Friday in an interview.

The state of Alaska is a partner in the project with producers BP, ConocoPhillips and ExxonMobil. Walker has pushed for the larger pipe size to provide capacity for shipping more North Slope gas, the governor said.

“If the pipe is expanded the state and the producers have agreed to share the cost of the expansion,” said Katie Marquette, Walker’s press secretary.

There are concerns that a late change in the project design could complicate the Federal Energy Regulatory Commission process now underway, but FERC has told the state it won’t be a problem.

“FERC chairman Norman Bay met with the governor in August in Alaska and told the governor that the change in design at this stage will not complicate or delay the federal regulatory process,” Marquette said. Read the rest of this entry »

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