Thread by @Nat_Herz

A few observations from reporting this week on the new crisis state of Alaska's budget. (thread)

(The situation was summarized by multiple sources familiar with the matter as: "We are f***ed.) #AKleg

The first and most striking fact: Even if oil prices recover to $35/barrel next year (and they're at $23/barrel now), Alaska still will not have enough cash to pay another year's bills -- even without any Permanent Fund dividend whatsoever.

Putting this another way: Alaska has $1.4 billion in its main savings account. It's going to spend $1 billion of that in the next fiscal year. Then we'll have a $500 million deficit and only $400 million to pay for it. (Again, this is if and only if oil prices recover.)

Nonetheless, Gov. Mike Dunleavy and some legislators are pushing for an extra "stimulus" payment from the $60 billion Permanent Fund.

A $1,000 payment would cost about $700 million.

But lawmakers are already drawing $3 billion from the Permanent Fund this year, which is seen as the maximum sustainable amount. That includes a separate, conventional PFD payment of $1,000 that costs another $700 million.

Most legislative leaders oppose the idea of the extra stimulus payment, saying it would reduce the value of the Permanent Fund for future generations. And one House majority member, Chuck Kopp, R-Anchorage, says the state really shouldn't have made the $1,000 conventional payment

But that dividend was needed to secure support from enough House minority members to reach a 30-vote supermajority required to pay for the full budget, Kopp said.

“A thousand-dollar dividend this year was completely irresponsible, but politically necessary.” #AKleg

Those who support the stimulus payment from the Permanent Fund acknowledge that it's not sustainable and may be a hit for future generations. But they also say that this is the ultimate rainy day and that the PF is a rainy day fund.

“This is once in several generations. When’s the last time that we had something this dramatic and this damaging to our economy?” said Rep. Ben Carpenter, a Kenai Republican. “Fifty years from now we’ll look back and say: ‘Totally justifiable. I get it.’”

I was surprised when I heard a very similar argument from one of Alaska's leading economists, @MGuettabi: “The economy is just halted right now. And the state is going to have to intervene by spending money over the next year. I just don’t see any way around it.”

#AKleg

The recently passed federal relief package will bring at least $1.25 billion in aid to state and local governments in Alaska, so that could help, but there's little clarity right now about how that money can be spent.

And keep in mind: If oil prices drop further, or oil companies have to reduce production -- which is being openly discussed at a national level -- that could make Alaska's fiscal situation even worse.

So would a further financial market downturn, given Alaska's dependence on investment returns from the $60 billion Permanent Fund.

All this stuff and more details in my story, here:

alaskapublic.org/2020/04/01/the…

#AKleg