Department of Revenue’s spring forecast up from fall projection

Department of Revenue Commissioner Lucinda Mahoney released Alaska’s spring 2021 revenue forecast last week. The spring forecast is up significantly from the fall 2020 prediction. As a result of increased oil prices and production, Alaska is expected to earn $792 million more over the next two years than was anticipated last fall. Specifically, the Unrestricted General Fund (the money available for government operations, basic services and capital improvements), is expected to earn $332 million more for Fiscal Year 2021 and $460 million more for FY 2022.

An unanticipated additional $460 million for the next fiscal year is a “substantial” benefit for the state budget, said Paul Labolle, chief of staff for Representative Neal Foster. For context, Alaska Governor Mike Dunleavy is proposing a $4.3 billion budget, so $460 million is proportionally significant. According to Labolle, the spring forecast commonly differs from the fall, but is “not usually that far off.” These unanticipated funds will take some pressure off legislators when crafting a budget and will mean a lesser draw from savings, Labolle said.

The bad news, though, is that even with the improved forecast, the state still has insufficient funds to both balance the budget and to pay out statutory Permanent Fund Dividends. According to Labolle, it is impossible to have a full PFD without dipping into savings. Not only this, but the governor is pushing for a nearly $5,000 dividend per person this year, which would come out to a total of $3.2 billion.

Overdrawing is exactly what Gov. Dunleavy is proposing to do. He seeks to fund the checks by drawing from the Permanent Funds’ Earnings Reserve account, holding the earnings on the Permanent Fund principal, which can be appropriated for any legal state activity and are used to pay the annual dividends to eligible Alaskans. However, a concern is that overdrawing from the ERA year after year is not a sustainable solution, said Labolle.

As Mahoney explained, the increase is the result of a higher price of oil and an improved oil production forecast. According to a release from the Alaska Department of Revenue, production in larger oil fields is expected to decline less than expected and, due to higher oil prices, there is an improved outlook for new developments. Compared to the fall forecast, oil is expected to rise by $7.73 a barrel in FY 2021 and $13.00 a barrel in FY 2022. Oil production in the North Slope is expected to increase by 4,700 barrels in FY 2021 and by 20,100 barrels in FY 2022 from the fall prediction.