Running out of gas: Alaska's oil riches are slowing down and forcing legislators to make tough choices.

Author:Cockerham, Sean


Welcome to Alaska. And now forget everything you've ever learned about how state finances work. Up here, it's all about oil. The state was so flush with cash just six months ago that it mailed a $3,269 check to every man, woman and child who had lived in Alaska for more than a year. And it's been sending out those sorts of checks for years. But now that oil prices have plummeted, state officials are looking at big budget deficits--just like nearly every state in the nation.

"Unless the price of a barrel of oil dramatically increases soon, we're looking at a potential revenue shortfall in excess of a billion dollars this year," says Governor Sarah Palin.

Palin, though, has battled with the Legislature over accepting the federal economic stimulus money being offered to Alaska. Last year's Republican nominee for vice president said the federal dollars would go for services people would expect to continue after the stimulus money runs out, when the state won't have enough to pick up the tab.

She balked at accepting nearly a third of the federal stimulus dollars, calling it an "unsustainable, debt-ridden package of funds," but now plans to take almost all of it. Her initial resistance to stimulus money in areas including education, energy efficiency grants, and meals for seniors proved controversial. Alaska has a long love affair with federal money, receiving more of it per capita than any other state. Legislators want every penny, with many saying the worry about what happens when the stimulus funds run out is overblown.

"Are you afraid that if we start feeding those seniors more they are going to expect to keep being fed more on a continuing basis?" Representative Mike Hawker asked Palin's budget chief.

State officials agree that the end of stratospheric oil prices spells trouble. In response, legislators slashed their spending on hometown construction projects for this year. But neither the governor nor legislative leaders are calling for significant cuts to state programs, or talking about making unpopular revenue choices like imposing taxes. They've chosen to rely on savings accounts that swelled last year when oil prices were high. That will work for awhile, but Palin and legislators concede a day of reckoning is coming--and soon.


"I'd say it's a very responsible budget, but it's not sustainable," says Hawker, the main architect of the operating budget that passed the House in March. "Oil...

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