WASHINGTON - Alaska's legislature passed a budget, avoiding a possible government shutdown next month though the state still faces a major shortfall and will need to take action if oil revenues do not improve.
The Alaska House and Senate passed the budget bill, HB 2001, late last week after having been at an impasse that led Gov. Bill Walker to warn of a shutdown if no measure reached his desk before the new fiscal year begins July 1.
The legislation averted that immediate crisis but analysts said that triple-A rated Alaska may still need to explore new revenue options to address a $3.5 billion budget deficit.
That gap exists based on the state's spring 2015 revenue forecast, which projected a 59% decrease from the previous year with revenues expected to drop to $2.2 billion from $5.4 billion in fiscal 2014.
"We need all hands on deck to fill that gap," Walker said in a statement. "Now that the budget negotiations are out of the way, I look forward to working with the legislature to continue this important conversation."
Moody's Investors Service analysts said Alaska's credit could be pressured by persisting low oil prices, even in the wake of the budget bill's passage.
"Low oil prices present fiscal difficulties for the largest oil-producing states in the US, especially Alaska, which is heavily reliant on the energy industry," Moody's analyst John Lombardi wrote in a commentary. "Oil and gas severance taxes fund approximately 90% of Alaska's operating budget, and as oil prices have declined the state has struggled to adjust."
Crude oil prices were well in excess of $100 per barrel throughout 2012 and much of the two following years, according to statistics from the Alaska Department of Revenue, but they've since tanked. As of June 12, that data shows, the price per barrel sat at less than $65.
In an interview with The Bond Buyer, Moody's analysts said that Alaska might need to address the budget gap in next year's regular legislative session. Alaska has no state income or sales tax, but could choose to explore some kind of special tax and budget cuts in order to close the gap. It's also possible, the analysts said, that oil prices could rebound and the state would no longer have a deficit to grapple with.
The state has a reserve of more than $10 billion that the legislature can tap with a three-quarters vote, Moody's noted, and is depleting that fund at about $117.4 million per week based on current spending.
