State forecasts $700M revenue decline next year
Revenues to the state of Alaska are expected to decline next year by about $700 million, the state Department of Revenue said Dec. 4.
Total revenues, which included restricted revenues and other income including federal funds, are expected to drop from $15.3 billion in the current fiscal year to $14.6 billion next year.
The new estimates predict state unrestricted oil revenues will decline by $510 million, from $6.9 billion in the current 2013 fiscal year to $6.39 billion in the 2014 fiscal year that begins July 1, 2013.
“The drop in estimated state income is due partly to a small projected decline in Alaska North Slope oil prices, a expected decline in production from an average 553,000 b/d to 519,000 b/d, and an anticipated increase in industry investment tax credits from $850 million in the current year to $1.015 billion next fiscal year,” Butcher said in the briefing.
Producing and exploring companies are allowed to credit expenditures against the state production tax. If an explorer has no production the company is refunded directly by the state.
The state Department of Revenue traditionally issues its annual revenue and production forecast in early December prior to the governor’s release of a proposed state budget on Dec. 15, which is required in the state constitution. An updated short-term revenue estimate is also usually released in April.
About 90 percent of Alaska’s state budget is paid for by oil taxes and royalties.
The Revenue Department is also forecasting continued declines of North Slope production in its annual production forecast released Dec. 4 at 6 percent annually over the next five years. That would bring oil shipped through the Trans Alaska Pipeline System down from an estimated average of 553,000 barrels per day in the current state fiscal year 2013 to an average 443,000 barrels per day in fiscal year 2017, state Revenue Commissioner Bryan Butcher said in a briefing.
The big increase in the tax credit expenditure next year will come from producing companies crediting capital investments, mostly for field maintenance, against the tax.
Cash payments to exploration companies who are without production tax liability has ranged between $360 million to $400 million a year in recent years.
The state’s industry incentive program is considered the most generous in the U.S. and is largely responsible for a modest uptick in exploration drilling in the state, but Butcher said the department may recommend changes to the tax credit scheme. I
f they are made they will be a part of Gov. Sean Parnell’s proposed revisions to the state production tax law, which are expected to be introduced this spring when the Legislature convenes its 2013 session in Juneau.
State legislators are concerned about the increasing cost of the credits as state revenues decline, and about results of the program. “We have made no decisions at this time on any changes,” Butcher said.
Tim Bradner can be reached at [email protected].