Weekly Wrap: In Gloomy Times, Alaska Bounces Back

By: - February 12, 2010 12:00 am

Here is a word we have not seen much lately: surplus.  

Higher oil prices have led to a $2.2 billion budget bulge in Alaska. The surplus will help Alaska recover from the recession faster than most states.

Gov. Sean Parnell, the Republican who replaced Sarah Palin after her resignation in July, said he prefers to set aside most of the money in a reserve fund and a savings account used to finance education. Lawmakers had to draw from both accounts when oil revenues plunged during the recession and the state needed to balance its budget.

The governor also proposed spending $100 million of the surplus to launch a multi-year, $500 million program to renovate public buildings around the state — a stimulus project, of sorts, in a state that lost hundreds of construction jobs last year.

Parnell has separately proposed tax breaks for oil companies, which he says will allow the companies to drill additional wells and hire more workers. Some Democrats have questioned the need for new tax breaks when one of the current tax credits already is expiring with no attempt to continue it, according to the Anchorage Daily News .

Alaska’s good fortune is an exception, of course. More states are like Delaware, which has learned that its loss in tax revenues is worse than first thought.

Of the five main sources of state revenue, only the personal income tax will return to its peak year of collections by the year 2014, according to a five-year forecast by the Delaware Economic and Advisory Council.

“The question is when and if [these revenues] will ever come back,” Stephen Kubico, a deputy Delaware controller general and economist said, according to the Wilmington News Journal . “These aren’t marginal changes either. These are sea changes. Going out five years we never do get back to peak.”

President Obama is asking Congress to continue helping states and cities recover from the recession through a popular borrowing program called Build America Bonds.

In the federal budget plan released Feb. 1, the president proposed renewing the bond program that was part of the $787 billion federal economic stimulus and making it permanent.

There is a catch. The bonds, which state and local governments issue to raise cash for job-creating work on public buildings, roads and bridges, are discounted because the federal government refunds 35 percent of the interest costs. Under Obama’s plan, the subsidy rate would drop to 28 percent.

Frank Hoadley, a Wisconsin finance official, told the Bond Buyer that the popularity of the program could taper off with a lower return. Since April, about $71 billion of the bonds were sold, exceeding expectations. The Congressional Budget Office said the program will cost $26 billion more over the next 10 years.

But Michael Decker, an official with the Securities Industry and Finance Markets Association, said the municipal bond market industry was aware that the 35 percent rate was designed to ease the tight credit market of a year ago, and that if the program was extended the rate probably would be lowered.


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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.