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Taxes, oil prices bump revenue
The story may not be new, but it still has a surprising ending.
Propelled by record oil prices and new production taxes, the State of Alaska is projected to bring in nearly $8.5 billion in unrestricted revenue this fiscal year, according to a preliminary forecast released on March 14.
Of that $8.5 billion, more than 90 percent, or around $7.7 billion, will come from oil production, about 71 percent more than in fiscal year 2007.
To forecast the revenue expected for the year, economists combined nine months of actual data with three months of revenue at an average oil price of $84.18 per barrel. The state fiscal year ends in July.
The final forecast is expected around April 11.
Winter price increases propelled revenues The preliminary forecast shows the impact of the rapid run-up in oil prices over this past winter as the delivered price of Alaska North Slope crude oil on the West Coast jumped more than $25 between December 2007 and March 2008, peaking at $110.18 on March 13.
In the fall 2007 forecast released earlier in the year, state economists predicted the oil industry would generate just $5.9 billion in unrestricted revenue in this current fiscal year, 44 percent lower than the amount predicted in the new forecast.
State economists offer the governor and Legislature several revenue alternatives based upon higher and lower price forecasts.
For fiscal year 2009, state economists predict oil prices will average $83.04 for the year.
As global oil prices surpass even inflation-adjusted records, many economists have suggested the price of oil might have a “new floor,” but Chief Economist Michael Williams with the state Department of Revenue disagrees.
“The biggest driver is perception,” Williams said. “Once perceptions change, the price level can change, and change dramatically.”
Williams said he expects high prices to encourage consumer behavior and inspire alternatives for the marketplace, which would in turn depress prices.
“What’s going on right now is being amplified by the financial sector, but it’s not being caused by it,” Williams said.
Progressive taxes added as well The additional revenue also comes from additional taxes, reflecting revisions to the production tax code enacted by state lawmakers this past November.
While revenue from property tax is expected to decline this fiscal year and revenue from the corporate petroleum tax should rise slightly, economists believe revenue from the production tax will more than double to $4.85 billion from $2.2 billion in fiscal year 2007.
Because the production tax rate enacted last year is progressive, rising with the price of oil, the recent increases in oil prices have exponentially increased state revenue.
In fiscal year 2007 the state collected $9.35 in production taxes from every barrel of oil. In the current fiscal year, that’s projected to jump to $21.11 per barrel.
Production still expected to decline While the state expects prices to stay up, they expect production to dip.
Oil and natural gas liquids production in Alaska is expected to be 734,000 barrels per day across the state this fiscal year, down 24,000 barrels, or 3.1 percent, from last year.
The forecast puts fiscal year 2009 production at 692,000 bpd, down 36,000 barrels, or 5 percent, from the figure forecast in the fall.
However, production at Prudhoe Bay is expected to increase slightly this year and in the coming year, largely based on assumptions that BP will complete corrosion-related maintenance projects, Williams said.
—Eric Lidji
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