December 16, 2008 / 1:48 AM / 11 years ago

Alaska sees thinner budget as crude falls

ANCHORAGE, Alaska, Dec 15 (Reuters) - Alaska Gov. Sarah Palin on Monday unveiled what she said was a tightened state budget for the coming fiscal year, a necessary response to falling oil prices.

“With the present market conditions and oil prices, it is incumbent on the state to present a general fund budget that spends less than the current one, especially when adjusted for inflation,” the Republican governor said in a statement.

According to the Palin administration, the governor’s proposed Fiscal 2010 budget — totaling $4.9 billion in general-funds spending for operations and capital projects and $11.2 billion in spending from all sources — represents a 7 percent decrease from the current year’s spending levels.

Oil accounts for nearly all the general-funds revenue in Alaska, and falling oil prices have already eaten away at the budget for the current fiscal year, which ends on June 30. The Fiscal 2009 budget assumed that North Slope oil prices would average $83 a barrel, but crude is now trading around $45.

To balance the books, the Palin administration said the state might have to use $402 million from a special savings account.

In brief comments at a news conference on Monday, Palin said she hoped to avoid such a step.

“We still have six months of time left in the fiscal year, so adjustments can be made there,” she said.

Next year’s budget is expected to create a surplus of $388.7 million, Palin said.

The state Department of Revenue has forecasted that Alaska North Slope crude prices will average $74.41 per barrel over the next fiscal year, with production averaging 665,000 barrels a day.

To be cautious, Palin said, the coming year’s budget was written on the assumption that oil prices will average $71 per barrel.

Nearly all of Alaska’s unrestricted government revenue comes from oil taxes, royalties and fees. There is no state personal income tax or statewide sales tax.

Some legislators were skeptical of the governor’s projections.

“I think there’s a great deal of concern in the legislature that the price forecast is aggressive and expecting too much,” said state Rep. Mike Hawker, an Anchorage Republican and incoming co-chairman of the House Finance Committee.

While other government and financial experts are forecasting oil prices to land somewhere between $45 and $51 a barrel, the Palin administration is expecting a much bigger rebound, he said.

“I just think they’ve been a bit exuberant in their price forecast,” he said.

Under state law, Alaska’s governor is required to submit operating and capital budgets by December 15 for the upcoming fiscal year. The legislature, which convenes next month in Juneau, has ultimate responsibility for passing state budgets. (Reporting by Yereth Rosen; editing by Carol Bishopric)

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