“[Alaska] Governor Sarah Palin submitted a supplemental budget to legislators today that reduces general funds by $268.6 million and seeks authorization to access savings to balance the budget at the end of the fiscal year” (Budget, 2009, ¶1).
Governor Palin is calling for further reduction in spending so that state savings does not have to be tapped to balance the budget (Budget, 2009, ¶2). Alaska derives most of its tax revenue from oil, thus its tax base is founded upon a highly volatile commodity.
“The $268.6 million in reductions will bring the estimated revenue shortfall to $1.36 billion. Legislators will have to authorize the use of reserves or make additional reductions to balance the FY2009 budget” (Budget, 2009, ¶3).
“FY2009 has been a year of unprecedented revenue volatility,” said Governor Palin. “Due to the dramatic decline in oil prices, the estimated revenue of $7.5 billion in the spring 2008 forecast was lowered to $5.5 billion in the January 2009 interim forecast, making responsible reductions necessary” (Budget, 2009, ¶4)
“The FY2009 budget authorized expenditures of $5.99 billion plus savings appropriations of $1.18 billion, for a total of $7.17 billion (Budget, 2009, ¶5).
The drop in oil prices requires that the state reduce spending, tap savings, or face a deficit (Budget, 2009, ¶6).
Commentary
Most states today run horrific deficits, and they enjoy a relatively stable tax base. The State of Alaska derives some 90% of its tax revenue from oil, a volatile commodity. The governor and the legislature must make accurate predictions about oil prices — and well, no one as yet has invented a crystal ball that really works.
That being the case, Governor Palin established the practice of saving a portion of taxes raised — a simple move which will now pay off for her. Even with this savings, her first instinct is not to attack the savings, but to cut spending further — to reduce the amount of savings that much be touched.
The simple financial principles of spending less than what is earned; and saving for emergencies are operative here. The other 49 governors, Obama, Congress, local legislatures and mayors might do well to watch and learn from Governor Palin and about how budgets are done.
References
Governor Palin reduces current year spending. (2009, February 3). State of Alaska, Governor. Retrieved February 4, 2009 from: http://www.gov.state.ak.us/news.php?id=1621
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