The plunge in oil prices is bringing budget pain and a new kind of freeze to state government in Alaska.
Alaska Gov. Bill Walker announced a hiring freeze and limits on travel by state employees Tuesday as part of an effort to control a growing $3.5 billion budget gap. He had previously proposed Alaska's first state income tax in 35 years.
"These restrictions on hiring and travel alone won't fix the deficit, but it's an important step," Walker said. Only travel and hiring that is considered essential to life, health and safety will be allowed, he said.
The new measures, which take effect immediately, came as credit rating agencies Standard & Poor's and Moody's both downgraded the state's credit rating, moves that are likely to raise borrowing costs and cause further budget problems.
Oil prices tumbled about 35% in 2015 and now hover at around $37 a barrel. There is a glut of oil on world markets brought on by record U.S. oil production, continued strong output by OPEC and a slowdown in demand growth. Many analysts predict that the glut will continue for most of 2016.
Moody's notes that oil and gas production-related taxes provided nearly 90% of Alaska's general fund revenues as recently as two years ago, but the plunge in oil prices has slashed those tax revenues by more than 60% since then.
Walker criticized the downgrades, saying they were "concerning and premature." But he said it gives further proof of the need to fix the budget gap.
"I agree with S&P that the stakes are high for Alaska to enact a sustainable fiscal package," he said.
The Alaska state legislature is due to start its next session Jan. 19.