Alaska’s budget deficit is widening.
According to figures released Friday, the Alaska Department of Revenue expects the state to earn $187 million less than budgeted in the current fiscal year, down from $5.2 billion. Oil revenue is running $196 million below budget as both prices and production are running below spring expectations, and the decrease has been only slightly balanced by higher-than expected tax returns elsewhere.
“It’s awful. It’s really bad,” said Sen. Bill Wielechowski, D-Anchorage, about the oil forecast.
Rep. Cathy Tilton, R-Wasilla, said by text message that the projected reduced revenue “is a sobering fact in Alaska’s fiscal reality. It is but another example of why fiscal discipline must be the cornerstone of a long-term fiscal plan.”
This spring, the forecast was for oil prices to average $66 per barrel and the state to produce 541,000 barrels per day. The new forecast is $63.54 per barrel and an average of 492,100 barrels per day through June 30.
Fiscal year 2021 begins July 1, and the department is taking a more pessimistic look at oil there as well. The state is now forecasting prices at $59 per barrel and 490,500 barrels per day. Both of those figures are lower than they were this spring, but a boost in the automatic transfer from the Alaska Permanent Fund will compensate for the expected decline.
Gov. Mike Dunleavy will introduce a preliminary version of the state’s fiscal year 2021 budget next week, and his proposal will be based upon the forecast issued Friday. The Legislature will begin considering the governor’s proposal when it convenes Jan. 21 in Juneau.
“We have our work cut out for us next session to make ends meet,” said Speaker of the House Bryce Edgmon, I-Dillingham.
The decrease in current-year revenue had been expected after a global glut of oil contributed to lower oil prices worldwide.
In a written statement, Alaska Policy Forum executive director Bethany Marcum said the new projections “are very disappointing but not unexpected." She added that the forum believes “reducing spending will be a necessity again in the next legislative session.”
Ed King, an independent economist who formerly worked for the Department of Revenue and Office of Management and Budget, said the state’s projections are in line with his own. He added that the department has since 2012 tended toward the conservative side with its price and production forecasts.
“Historically, the opportunities for the numbers to come in higher are greater than those for it to come in lower,” he said, adding that the forecast represents a single point in a wide range of possible outcomes.
He said the picture is better for the state in 2022 and onward, as large new oil fields are scheduled to begin producing at that time. Interim Revenue Commissioner Mike Barnhill agreed with that assessment in the forecast.
“New fields offer tremendous potential to increase production later in the 2020’s but these developments are still contingent on final investment decisions and commitment of billions of dollars of new investments on the part of oil and gas producers,” he wrote.