The budget talks: observing the 'Fairbanks Project'.

• Author: Anjum, Shehla
• Position: ECONOMY

On the first weekend of June in Fairbanks Governor Bill Walker gathered about two hundred Alaskans for his "Building a Sustainable Future" meeting to discuss the states financial problems as oil revenues keep declining. Participants included Walker's top administrators, his transition team, and other Alaskans. I went not as a participant but rather as an observer, arriving with some doubts about the meeting.

Our state's finances certainly seem critical. Oil revenues, which pay for 90 percent of our budget's unrestricted general fund expenditures, have dropped by more than 50 percent. Fortunately, we have cash reserves to draw on, but by 2019 our reserves may be exhausted, except for the Permanent Fund.

On the Friday opening, participants heard about state services, the grim budget math, and a revenue model developed by the Department of Revenue. Many shared my skepticism that much could be done. However, that skepticism was noticeably absent at the session's conclusion on Sunday.

The governor gathered a disparate group of people, laid the issues on the table, and told the participants to discuss options. The meeting was to be no more than "a healthy discussion about different options," Walker said. "We didn't ask you to come here so we could sell you a product."

In his overview, Gunnar Knapp, director of UAA's Institute of Social and Economic Research, warned of the fiscal crisis that will result if nothing is done. The revenue department's projection of oil prices recovering significantly, to $100 per barrel or above, is too rosy, Knapp said, and not supported by oil market analysts. The state cannot depend on increases in oil prices.

Alaskans don't know what future oil revenues will be like because oil prices are unpredictable, Knapp said. The state's fundamental challenge is this: Oil production is falling, the population is rising, and it's hard to support the state's economy with falling oil revenues. "We should not talk about not what we 'don't' want to do [no taxes, keep dividend] but focus on what we should do." Alaskans should use their assets and raise new revenues through taxes and make more spending cuts. One such asset, Knapp pointed out, is the Permanent Fund's income. This year, the Permanent Fund "brought in more income than oil revenues" and all options, even unpopular ones, need to be considered, he said.

On Saturday, participants were divided into seven groups to scrutinize state agencies' services--Resources and...