Annual revenue forecast a bleak picture for production take
The state released its annual forecast for state revenue and oil production Dec. 8, and the news wasn’t good.
Unrestricted general fund revenues, a measure of funds available for appropriation by the Legislature to support public services, is now forecast at $1.6 billion for fiscal year 2016, the current budget year, compared with $2.26 billion for the last fiscal year that ended June 30.
This will likely balloon a projected deficit for the year from $2.7 billion estimated last spring to more than $3 billion.
Some good news, however, is that income from Alaska’s investments, mostly the Permanent Fund, will be sharply increased in the current year to $3.77 billion compared with $2.58 billion last year.
Within that total, the Permanent Fund’s “realized” earnings — funds received through asset sales, bond interest or rentals, and which are available for appropriation — are estimated at $3.35 billion for this year, up from $2.93 billion last year.
The Revenue Department report also listed a gain in the Fund’s unrealized earnings, or its market gains, of $349.8 million, but those are not available for appropriation.
Right now the increases in Permanent Fund earnings don’t help the immediate state budget outlook because the Legislature has avoided spending these, preferring to let them accumulate in an earnings reserve account of the Permanent Fund.
The annual Permanent Fund Dividend paid to citizens is funded by part of the fund’s annual earnings but the total income far exceeds what is spent on the dividend.
A plan to use part of the fund’s annual earnings to help support the state budget is expected to be among new revenue options the Legislature will consider in 2016. The annual dividend is expected to be retained although it may be modified in some way.
Other parts of the revenue forecast had more sober news, however. Overall Alaska production from the North Slope declined by about 5.6 percent in the state’s current fiscal year, state revenue Commissioner Randy Hoffbeck said.
“While there was a 13.6 percent increase in production from the Cook Inlet, that was not sufficient to offset a 5.6 percent decrease on the North Slope,” Hoffbeck said in a statement.
North Slope production is now expected to average 500,200 barrels per day for the current fiscal year, down from 519,500 barrels per day estimated in the forecast made last spring.
“We are forecasting North Slope annual production to remain above 500,000 b/d until 2018,” Hoffbeck said.
Cook Inlet production is rising, however. Previously estimated at 14,700 barrels per day in the spring forecast, it is now expected to average 17,800 barrels per day for this year, according to the forecast.
Meanwhile, a bump up in North Slope production to 504,900 barrels per day is expected in fiscal year 2017 beginning next July 1, due to new projects recently completed or that now under development and soon to be completed.
However, Slope output is expected drop again in fiscal year 2018, to 506,600 barrels per day, according to the forecast.
The decline in oil revenues has had on other effect, although it is just an accounting measure. Oil revenues are sharply down, which means that the contribution of non-petroleum revenues, small as they are compared to oil, are having a larger impact.
This year, 74 percent of Alaska’s revenues are being paid by petroleum taxes and royalties, compared with as much as 90 percent in previous years when oil prices were higher.
Meanwhile, the state budget still exceeds revenues by a large measure. The state has been tapping cash reserves to pay hefty budget deficits, which are now exceeding $3 billion a year. The state has sufficient reserves to pay the deficits for three more years, after which earnings of its $55 billion Permanent Fund, an investment fund of past oil income, could be tapped.
Alaska’s forecast of revenues, oil production and operators’ expenditures is done annually, typically in early December, and is updated in the spring, usually in early April.
Tim Bradner can be reached at firstname.lastname@example.org.