Walker Mallott Transition Team Presentation (11.21.2014final)
11
Problem has been building 2013 … “Right now, the state is on a path it can’t sustain. … we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash.” --ISER Web Note 14 (2013) 2014… “The implications of the figures are severe … Failure to reduce the projected deficits will result in a very hard landing -- Legislative Finance Division (2014) 1
-
Upload
brad-keithley -
Category
News & Politics
-
view
183 -
download
0
Transcript of Walker Mallott Transition Team Presentation (11.21.2014final)
Problem has been building
2013 …“Right now, the state is on a path it can’t sustain. … we do not have enough cash in reserves to avoid a severe fiscal crunch soon after 2023, and with that fiscal crisis will come an economic crash.” --ISER Web Note 14 (2013)
2014… “The implications of the figures are severe … Failure to reduce the projected deficits will result in a very hard landing -- Legislative Finance Division (2014)
1
And then this happened …
2014 ANS Price
Jan $105Mar $111May $105
FY 2015Budget Breakeven
$117Jul 1 $111Aug 1 $103Sep 1 $ 97Oct 1 $ 91Nov 1 $ 82Nov18 $ 75
????
The future (2023) is now …
2
What does it mean …$105 $85 oil• The revenue equivalent of a
40% production decline to ~300,000 b/d
At current spending rates:• Draining ~$10 million per day
from savings• $3+ billion (50+%) deficit
(~$4,500 per Alaska man, woman and child; $18,000 per family of 4)
• Only 3 years of unrestricted savings (SBR & CBR) remaining as of June 30, 2015
Statutory and Constitutional Budget Reserves
$- $1 $2 $3 $4 $5 $6 $7 $8 $9
$10
2016 2017 2018 2019 2020 2021 2022 2023 2024
Billi
on$
Start of Fiscal Year
CASH RESERVE LIFEAT DIFFERENT OIL PRICES
$100
$90
$80
$70
3
What lies beyond that …
Future revenue levels depend on … Key variables we can’t influence
Oil prices LNG prices
Key variables we can influence, but not control (or better put, the DNR/Congressional “to do” list) Changes in the production curve New oil on state lands (conventional & viscous) LNG NPRA OCS (with state royalty sharing) ANWR
4
If we hit the trifecta …
Assumptions …$105 oil2% net production decline
Viscous oil: 2020NPRA: 2020New Conv Oil: 2020
Gas (@$3.50) 2024ANWR: 2026OCS (w/ rs): 2026
Sustainable Spending $6.52 B
$0
$5
$10
$15
2016 2020 2024 2028 2032 2036 2040
UNRESTRICTED GENERAL FUND(BILLION $)
? PF CORPUS DRAW
? PF INFLATION PROOFING
? PF EARNINGS
? DIVERT PFD TO GF
? INCOME/SALES TAXES
? NATURAL GAS
? NEW OIL
CASH RESERVE
CURRENT OIL REVENUES
NON OIL REVENUES
$0$5
$10$15$20$25$30
2016 2020 2024 2028 2032 2036 2040SBR & CBR
CASH RESERVE (Billion $)Start of Fiscal Year
5
A middle case …
Assumptions …$90 oil3% net production decline
Viscous oil: 2020NPRA: 2020New Conv Oil: 2020
Gas (@$1.50) 2024No near future OCS or ANWR
Sustainable Spending $4.49 B
$0
$5
$10
$15
2016 2020 2024 2028 2032 2036 2040
UNRESTRICTED GENERAL FUND(BILLION $)
? PF CORPUS DRAW
? PF INFLATION PROOFING
? PF EARNINGS
? DIVERT PFD TO GF
? INCOME/SALES TAXES
? NATURAL GAS
? NEW OIL
CASH RESERVE
CURRENT OIL REVENUES
NON OIL REVENUES
$0$2$4$6$8
$10$12
2016 2020 2024 2028 2032 2036 2040SBR & CBR
CASH RESERVE (Billion $)Start of Fiscal Year
6
A low case …
Assumptions …$80 oil5% net production decline
Viscous oil: 2020NPRA: 2020New Conv Oil: 2020
No near future gas, OCS or ANWR
Sustainable Spending $2.78 B
$0
$5
$10
$15
2016 2020 2024 2028 2032 2036 2040
UNRESTRICTED GENERAL FUND(BILLION $)
? PF CORPUS DRAW
? PF INFLATION PROOFING
? PF EARNINGS
? DIVERT PFD TO GF
? INCOME/SALES TAXES
? NATURAL GAS
? NEW OIL
CASH RESERVE
CURRENT OIL REVENUES
NON OIL REVENUES
$0$2$4$6$8
$10$12
2016 2020 2024 2028 2032 2036 2040SBR & CBR
CASH RESERVE (Billion $)Start of Fiscal Year
7
How long will low prices lastUncertain early in the cycle, but now increasing consensus: EIA November Short Term Economic Outlook
“ … Brent crude oil prices will average $83/bbl in 2015, $18/bbllower than forecast in last month's STEO.”
IEA November Oil Market Report “Our supply and demand forecasts indicate that barring any
new supply disruption, downward price pressures could build further in the first half of 2015 .... it is increasingly clear that we have begun a new chapter in the history of the oil markets.
Capital Economics (London) Forecasting $75 per barrel by the end of 2015, $70 by the end of
2016 and “given the current negative sentiment in the market, it is clearly possible that $70 could be hit much sooner ... we believe that lower oil prices are here to stay."
8
What is the goal…
“I will make the hard choices necessary for a sounder fiscal future, including putting in place a sustainable budget. I will work to make sure the
investment climate in Alaska supports those goals, which includes creating a favorable fiscal climate
for citizens and companies investing in our economy.”
– Bill Walker on fiscal responsibility
9
The challenge ahead …
Operating Budget:Formula: $2.2Non-Formula: $2.4Statewide: $ .7PERS/TRS $ .3*
Total $5.6
Capital budget: $ .6
Total $6.2http://www.legfin.state.ak.us/FisSum/FY15-Budget.pdf
FY 2015 Unrestricted General Fund (UGF) Budget
At $85, revenues are only in the range of $3 billion:What to do about FY 2015, what to do going forward
10
The choices ahead …
Spending Cuts Capital Budget shrinks first
(and fast)
Attention will need to turn to the big drivers in the Operating Budget (FY2015): DEED/ K-12 ($1.4 B)
DHSS/Medicaid ($1.1 B)
O&G tax credits ($.45 B)
University ($.37 B)
Personnel count and cost
Revenue Options Pulling from savings (depleting
the cupboard) CBR/SBR ($10 B)
Designated reserves ($2.8 B)
PF earnings reserve ($6.7 B)
Annual revenue Sales/income tax ($1.3 B)
Diversion of PFD ($1.4 B)
Permanent Fund corpus $47 B, but requires a vote
11
