State revenues, driven by lower production and lower oil prices, are down dramatically.
That was the guts of the fall 2015 revenue forecast released by the Alaska Department of Revenue Dec. 8.
The following day Gov. Bill Walker unveiled a plan for state funding which includes cuts, more taxes and a major shift in the use of the Alaska Permanent Fund to finance state government.
Revenue Commissioner Randall Hoffbeck said in a Dec. 8 statement that state revenues for fiscal year 2015 are down by more than 50 percent from fiscal year 2014, with general fund unrestricted revenues down nearly 60 percent.
The biggest source of the state’s general fund unrestricted revenue is taxes on oil production, and while Cook Inlet production increased 13.6 percent, North Slope production was down by 5.6 percent, Hoffbeck said, resulting in an overall state production decrease of 5 percent. He said ANS production is forecast to remain at more than 500,000 barrels per day until 2018.
The fall forecast is based on an annual average ANS oil price of $49.58 per barrel for fiscal year 2016, increasing to $56.24 per barrel for fiscal year 2017.
Hoffbeck said that beyond fiscal year 2017 the department is projecting annual average prices to rise slowly to more than $80 per barrel within the 10-year forecast period.
FY 2015
In the fall forecast Revenue said the state received $8.5 billion in FY 2015 from all sources, down more than 50 percent from FY 2014. General fund unrestricted revenues were $2.3 billion, with oil and gas revenues accounting for approximately 75 percent. By comparison, total state revenues were $17.2 billion in FY 2014, $5.4 billion of which was GFUR.
The department is forecasting total revenues of $9.5 billion for FY 2016 and $10.3 billion for FY 2017.
FY 2015 total crude oil production averaged 519,500 bpd, 27,400 bpd less than in FY 2014, the department said.
North Slope production decreased from 531,100 bpd in FY 2014 to 501,500 bpd in FY 2014.
“In general, this provides downward pressure on oil and gas revenues, although not on the same scale as the decrease in price,” the department said.
Plan impacts on oil and gas
In a statement describing the “New Sustainable Alaska Plan” the governor’s office said The Alaska Permanent Fund Protection Act would re-plumb “the flow of funding by diverting volatile resource revenue away from the state’s annual budget” and placing it directly into the permanent fund.
The plan also calls for continued cuts, with $100 million to come from the operating budget and $425 million from oil exploration credits.
The oil and gas tax credit system will be changed into a low-interest loan program, with the rate determined by the number of Alaskans hired. Exiting commitments will be honored, the administration said, with the FY 17 budget allocating $1.2 billion for a transition fund and loan program.
The plan also calls for an increase of $100 million in the minimum tax on the oil and gas industry.
Mining, fishing and tourism will also be taxed, along with alcohol, tobacco and motor fuel, and a state income tax would be instituted.
AOGA responds
Kara Moriarty, president and CEO of the Alaska Oil and Gas Association, said in a Dec. 9 statement that low oil prices have been difficult for the oil industry, as well as for the state, “with multiple companies announcing plans to curtail exploration in the Arctic and on the North Slope.”
She said that with low oil prices it is not the time “for the state to increase taxes or reduce incentives to the oil and gas industry,” both of which the governor is proposing. AOGA supports the governor’s goal to put more oil into the trans-Alaska oil pipeline, she said. “However, increasing taxes and removing incentives will not lead to more production.”
Mixed legislative response
Legislative comments on the proposal varied.
Rep. Mark Neuman, R-Su-Valley, House operating budget chair, said Walker “deserves credit for proposing some difficult options for filling our income gap; we appreciate him stepping out and taking this head on. It’s time for us to digest it, get with our experts and our neighbors and start weighting it on the merits.”
Rep. Steve Thompson, R-Fairbanks, House capital budget chair, also thanked the governor and his team, said he was looking forward to seeing the details, but also said, “I don’t want to ask Alaskans to pay an income tax unless it’s absolutely necessary. We’re not sure we’re there yet; there’s room for more cuts.”
The co-chairs of Senate Finance said they remain committed to cuts before asking Alaskans to pay taxes.
Sen. Anna MacKinnon, R-Eagle River, said the governor’s proposal was a starting point. “We must be mindful of our economy, jobs for Alaskans and keeping our people safe and secure when making these decisions.”
Sen. Pete Kelly, R-Fairbanks, noted the series of taxes in the governor’s proposal, and said, “I wish I had some pithy comment to express my disdain for taxes, but I don’t. So for now, I’ll just say no.”
Senate Democrats said they were disappointed with the specifics of the governor’s plan. Senate Minority Leader Berta Gardner, D-Anchorage, expressed concerns about cuts to education, saying the “plan falls far short of the values embraced by Alaskans.” Sen. Bill Wielechowski, D-Anchorage, said oil companies and wealthy Alaskans “will be thrilled” because three-quarters of what the proposal takes “will come from hard-working Alaskans, many of whom rely on their permanent fund checks to cover the basics.”
House Democrats shared that view, saying the plan “shifts much of the burden of paying for state government from the oil and gas industry onto the backs of hard-working, average Alaskans.”
House Minority Leader Chris Tuck, D-Anchorage, said the governor’s “proposal misses the mark.”
“Our troubling fiscal situation was not caused by low-income Alaska, working families, and small-business owners but today’s budget proposal shifts a large share of the burden of responding to the fiscal situation squarely on their shoulders.”
