With decreasing oil prices, state expects major deficits

The Alaska Department of Revenue has drastically revised its financial forecast to account for lower oil prices, anticipating multi-billion-dollar deficits.

Oil revenue is expected to drop by more than half. The department’s fall report projects the state will bring in $2 billion in oil revenue this fiscal year, compared to nearly $5 billion in the previous year. The Department of Revenue made that calculation based on an average oil price of $76 per barrel. Brent crude oil is currently valued at $65 per barrel.

The Department of Revenue does expect oil production to increase slightly over the next two years, and projects that it will remain above a half million barrels per day over the next three years. Production is expected to decrease by 22,000 barrels this fiscal year.

The new numbers indicate the state is facing a major deficit. When lawmakers passed their budget this spring, they planned for a gap of $1.4 billion. The deficit for that same budget has now ballooned to $3.5 billion.

A similarly large deficit is expected for the coming fiscal year. Last week, Gov. Bill Walker released the budget his predecessor, Republican Sean Parnell, without endorsement. Parnell’s $5.5 billion proposal would result in a $3.3 billion deficit if accepted unchanged at projected oil prices.

The state currently has $15 billion in its budget reserves.

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