State headed back toward deficits

Kristen Nelson

After a year of high oil prices and a small budget surplus in fiscal year 2001, “the state is headed back toward growing budget deficits as oil prices move into their historic range of $17 to $19 per barrel for Alaska North Slope crude,” Revenue Commissioner Wilson Condon said in a Dec. 7 letter conveying Revenue’s fall revenue forecast to Gov. Tony Knowles.

Condon said the department is forecasting a $906 million deficit for fiscal 2002 (ending June 30), “based on oil averaging $20.55 for the year.” High prices in the first six months of the year help keep the average from looking worse.

“Alaska North Slope crude was selling for around $17 a barrel last week and we expect it to hang around that price range for the rest of the year,” Condon said.

If the nation’s economy starts to recover next year and if worldwide oil demand picks up a bit, the department sees ANS crude averaging $18.81 a barrel in fiscal 2003 (beginning July 1) and $19.72 in fiscal 2004 (beginning July 1, 2003).

Prices also depend upon the ability of the Organization of Petroleum Exporting Countries to manage world oil supply. Revenue is forecasting that the state’s budget gap will continue to grow, with a budget gap of $1.13 billion in fiscal 2003 and $1.07 billion in fiscal 2004. Production, which averaged 991,000 barrels a day in fiscal 2001, is expected to average 1.012 million barrels a day in 2002 and to remain above the million-barrel-a-day mark through fiscal 2010. But, Condon said, because of the way oil production is taxed, declining barrels of Prudhoe are being replaced by barrels from newer fields which bring less revenue to the state.

Revenue is forecasting that the Constitutional Budget Reserve will be empty by summer 2004.