With North Slope oil prices at their highest level in seven years, the Alaska Department of Revenue is sharply increasing its projections for state revenue.
If oil prices remain high, they could encourage the Legislature to approve a bonus Permanent Fund in the spring and would significantly affect ongoing debates about how the dividend should be paid in the future. While Alaska lawmakers have occasionally discussed the need for increased funding to help schools or crime prevention, spending on the PFD has dominated conversation in the Capitol.
The new prediction is for $6 billion in state revenue for the current fiscal year, up from $4.7 billion in the state’s spring forecast. For fiscal year 2023, which represents the budget that will be drafted next spring, the new prediction is for $6.1 billion in revenue, up from $5.1 billion.
Gov. Mike Dunleavy, who has proposed amending the state constitution to guarantee payments, said on social media Friday that the new forecast means “there is no excuse” for not paying a dividend in line with his plan.
There was a lack of support for the governor’s plan during this year’s extended sessions of the Legislature, in part because it would have created a substantial deficit over the next few years.
Since 2017, lawmakers have set the dividend manually and have frequently argued over the precise amount.
“If you have prices near where they are from now through the end of fiscal year 2022, which is the end of next June, it probably takes some of the pressure off,” said economist Roger Marks.
Rep. Adam Wool, D-Fairbanks, is among the legislators who has proposed an alternative formula and said there will be some pressure to pay an additional, spring dividend if prices remain high.
“I mean, there’s a couple of ifs. Is this price really going to hold? Is the average really going to be $81? And, you know, is production as big as they say it is? Or will it be as big as they say it is? And I think I think it’s overly optimistic. But, you know, I guess time will tell,” he said.
Rep. Ivy Spohnholz, D-Anchorage, is the chair of the House Ways and Means committee, which has discussed dividend plans during the latest special session. She said that if the forecast is accurate, “then it’s likely there’ll be consideration of some sort of additional dividend spending.”
The new forecast also raises non-oil revenue, but by smaller margins than the oil increase.
[Related: If it holds, Alaska’s new revenue forecast would shrink the deficit created by most new PFD proposals]
The revenue department normally publishes its revenue forecast at the end of the year, about the time Alaska’s governor is required to publish a draft budget.
Friday’s preliminary forecast is unusual but not unprecedented. In 2017, the department released a similar forecast on Oct. 25. In 2010, it released one in November.
In a written statement, the revenue department said it has previously published early estimates “when prices have strayed significantly from the preceding official forecast.”
In October, the average price of a barrel of Alaska North Slope oil was $84.36, according to figures published Friday by the revenue department.
That’s the highest monthly figure since October 2014. The new forecast predicts oil to average $81.31 per barrel this fiscal year and $76 during FY23. That’s up from $61 and $62 in the spring forecast and from $48 and $49 in last year’s fall forecast.
When they raised their estimates, state forecasters relied on market forecasts, the Department of Revenue said in a written explanation, then multiplied by expected production.
Oil analyst and attorney Brad Keithley said he believes the state’s new price projections are reasonable for the next two years, but he believes the state’s production estimates are too optimistic.
The state is projecting an average of 488,400 barrels per day of production, but through Friday, production had averaged only 450,007 since July 1. To make the new estimate, production would have to rise above 500,000 barrels per day, he said, and he doubts that will happen.