Oil revenue is up in state’s spring forecast

The Alaska Department of Revenue's Tax Director Ken Alper fields questions from members of the House Finance Committee in the Alaska State Capitol on Feb. 27, 2018. (Photo by Skip Gray/360 North)
The Alaska Department of Revenue’s Tax Director Ken Alper fields questions from members of the House Finance Committee in the Alaska State Capitol on Feb. 27. Alper said Friday that rising oil prices will reduce the state’s deficit. (Photo by Skip Gray/360 North)

Higher oil prices will mean more revenue for the state government. That’s the upshot from a new state forecast released Friday.

In December, the Alaska Department of Revenue predicted that the price of oil would be $56 per barrel this year. This new forecast says it will be $5 higher at $61 and go up even more next year.

Even at that price, the state will still have a gap of $2.3 billion between what it spends and what it raises. And the state doesn’t have that much money in the savings account it’s used in the past, the Constitutional Budget Reserve.

State Division of Taxation Director Ken Alper said the state will have to draw from Alaska Permanent Fund earnings but that draw won’t be enough to close the gap.

“We still have a deficit,” he said. “It’s just a little bit smaller. You know, it may be $300 to $500 million is what we need to cover after the use of the permanent fund.”

The report projects the state will be have $256 million more in revenue this year and $212 million more next year. Oil production will be somewhat lower than previously projected this year – but slightly higher in future years.

Lawmakers from the two majorities in the Legislature had different responses to the news.

Anchorage Democratic Rep. Les Gara said higher oil prices don’t reduce the need for a long-term plan for the state budget that includes new revenue. Gara supports higher oil and gas taxes. He noted that oil companies don’t pay any production taxes on new fields first seven years of production.

“The budget gap is phenomenal and we will be out of savings within a year if this Legislature does not get its act together to put together a budget plan that requires, maybe, oil companies to chip in,” he said. “Oil companies that are now paying no production taxes whatsoever. Can we afford to do that when the state is rearranging the chairs on the Titanic?”

Eagle River Republican Sen. Anna MacKinnon responded to Gara’s call for higher oil taxes.

“Well, I think that’s shocking,” she said. “First of all, industry as well as the state has suffered through losses, per se, in investment dollars. And industry specifically has been bleeding and not receiving profits.”

MacKinnon said the improved forecast supports the Senate’s position: to pass a plan to draw from permanent fund earnings now and to consider any remaining spending gap in the future.

Correction: An earlier version of this story quoted Rep. Les Gara out of context and overgeneralized the comment’s scope. Gara’s statement about oil companies not paying production taxes was specifically about new fields during the first seven years of production, not oil companies generally. 

Andrew Kitchenman

State Government Reporter, Alaska Public Media & KTOO

State government plays an outsized role in the life of Alaskans. As the state continues to go through the painful process of deciding what its priorities are, I bring Alaskans to the scene of a government in transition.

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