As oil prices fall, governor orders halt to new spending on 6 megaprojects pending review

Energy Associated Press

With oil prices dropping, Alaska Gov. Bill Walker has halted new spending on six high-profile projects, pending further review.

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Walker issued an order Friday putting the new spending on hold. He cited the state's $3.5 billion budget deficit, which has increased as oil prices have dropped sharply.

With oil prices now around a five-year low, officials in Alaska and about a half-dozen other states already have begun paring back projections for a continued gusher of revenues. Spending cuts have started in some places, and more could be necessary if oil prices stay at lower levels.

How well the oil-rich states survive the downturn may hinge on how much they saved during the good times, and how much they depend on oil revenues. Some states, such as Texas, have diversified their economies since oil prices crashed in the mid-1980s. Others, such as Alaska, remain heavily dependent on oil and will have to tap into sizeable savings to get by.

The projects Walker halted spending on include a small-diameter gas pipeline from the North Slope, the Alaska Dispatch News (http://is.gd/ehBsaQ) reported. The other projects are the Kodiak rocket launch complex, the Knik Arm bridge, the Susitna-Watana hydroelectric dam, Juneau access road and the Ambler road.

"The state's fiscal situation demands a critical look and people should be prepared for several of these projects to be delayed and/or stopped," Walker's budget director Pat Pitney said in an email.

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According to Walker's order, the hold on spending is pending further review. The administration intends to decide on project priorities near the start of Alaska's legislative session Jan. 20, and no later than a Feb. 18 legal budgeting deadline, Pitney said.

State lawmakers have final authority to decide whether the projects should continue to be funded, Pitney said.

Contractually required spending and employee salaries will continue.

Walker's order asks each agency working on the projects to stop hiring new employees, signing new contracts and committing any new funding from other sources, including the federal government.

The action follows a letter sent Tuesday by the state Legislature's Republican leadership, who urged the governor to immediately cut spending levels in light of the budget crunch.

The state's savings is protected at about $9.6 billion by the end of the 2015 fiscal year next June. But how long the savings last depends on the unstable price of oil and the rate of state spending. Oil taxes and royalties were expected to represent nearly 90 percent of Alaska's unrestricted general fund revenue this year.

Walker won office in November after running as an independent against incumbent Republican Gov. Sean Parnell.

The spending move by Walker, who was long a Republican, was praised by two key Republicans, state Rep. Steve Thompson, who co-chairs the House Finance Committee, and state Senate's majority leader, John Coghill of North Pole.

"The governor's definitely stepped right out there in front of it," said Thompson, of Fairbanks. "I give him credit for that — he's stepping forward and making the hard announcement."

Both lawmakers, however, said they wanted to be cautious about curtailing progress on a gas line.

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Information from: Alaska Dispatch News, http://www.adn.com