The Alaska Revenue Department on Friday said the state will take in $325 million less than expected over the next two fiscal years, in part because of an oil-extraction technique that will cost the state in the short-term but will help yield a bit more crude in the long run, according to the spring revenue forecast.
That's the good news.
Here's the bad news: The state has yet to factor into its budget the hit from a proposed oil-tax cut that's expected to cost somewhere around $1 billion a year. Passage of that bill seems all but likely, now that the bill has moved from the Senate to the less-thoughtful (Animal) House, a place where fart jokes and tongue-play have reigned in recent days.
The blow to the treasury from the bill, assuming it passes, won't take effect until Jan. 1. That's midway through fiscal 2014. But even in half a year, it will bludgeon the state's treasury by removing hundreds of millions of dollars.
David Teal, legislative finance director, said he's worked up very rough figures showing that if Senate Bill 21 passes, the state would fall $655 million short of meeting the cost of the Senate's 2014 capital and operating budgets.
That's a low-end estimate that could easily climb, he said. If the House adds $300 million for an in-state gas line, for example, the cost rises. The estimate also doesn't yet take into account the House's latest move on Senate Bill 21 -- reducing the production tax on oil companies from 35 percent to 33 percent, a change expected to cost the state treasury at least $200 million.
If Senate Bill 21 doesn't pass, Teal estimates that the state would have a surplus of about $120 million beyond what's proposed in the Senate's capital and operating budgets. But again, that surplus could easily fall as projects are added or other factors change, Teal said.
Deficit spending would initially force the state to rely on its Constitutional Budget Reserve, an $11 billion stash that's grown thanks in part to the tax rates that Gov. Sean Parnell's Senate Bill 21 would cut. The cut, he hopes, will prompt global oil giants such as BP and Exxon Mobil Corp. to reinvest their windfall in Alaska to resurrect the waning North Slope oil patch.
As for the spring revenue forecast, the state expects less North Slope oil to be produced this fiscal year and in fiscal 2014.
In 2014, the drop isn't due to an unexpected surprise in the rate of production decline, said Revenue Commissioner Bryan Butcher. Oil production on the North Slope has fallen steadily for more than 20 years, following a natural decline curve for aging fields.
The drop in 2014 is related to a recent decision by oil producers to reinject natural gas liquids to enhance oil recovery. The decision reduces oil production in the short term but very slightly increases production starting in 2016, though not enough to counter the downward trend the state expects in overall production.
It means the state can count on about 10,000 barrels less daily in fiscal 2014, dropping the average production for that year to about 527,000 barrels a day, Butcher said. But by 2022, the end of the revenue forecast, North Slope oil production is expected to average 344,000 barrels per day.
Of course, that doesn't account for new discoveries, something that supporters of Senate Bill 21 say will happen, once production taxes are cut. Time will tell if they're right.
Contact Alex DeMarban at alex(at)alaskadispatch.com