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Oil Tax Revenue Expected To Decline By $2 Billion

By | December 4, 2013 - 4:44 pm

The State of Alaska is expecting to take in $2 billion less in oil taxes over the next fiscal year, according to the Department of Revenue’s fall forecast. That means a 30 percent drop in the state’s unrestricted general fund, the pool of money that the state’s elected leaders control.

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Commissioner Angela Rodell says there are a number of factors contributing to this decline, but the biggest ones are lower production and lower prices for oil. While the state had expected a barrel to cost around $109 on average, they’ve changed that estimate to $105.

“We can’t discount just how influential oil prices are and will continue to be on future forecasts,” says Rodell. “So, even when we turn oil production around and stem the decline, oil prices will continue to be a very heavily influential factor on future state revenues.”

Rodell says the state’s new oil tax law, which goes into effect this January, plays a smaller role in this anticipated downturn. Under the old system, the tax rate went up as oil prices increased. The new system, which the Parnell administration has named the “More Alaska Production Act” or MAPA — sets a tax ceiling of 35 percent with tax credits issued as the price of a barrel of oil goes down. Opponents of the new tax law have called it a “giveaway” to oil companies, and a referendum to repeal it is slated to appear on the August primary ballot.

Rodell says that since oil prices are lower than anticipated, the Department of Revenue is seeing less of a difference between the two system than anticipated.

“That’s not to say that MAPA doesn’t have an influence on the decline in revenue because we have estimated that decline in revenue attributed to tax reform to be roughly $250 to $300 million,” says Rodell. “My concern is that they think the entire decline is due to MAPA, when in fact the vast majority of the decline is due to the reduction in oil prices.”

But some Democratic lawmakers who opposed the new law think the difference between two oil tax regimes is being downplayed. Anchorage Sen. Bill Wielechowski has dubbed the law an “unmitigated financial trainwreck” after looking at the forecast. House Minority Leader Beth Kerttula says she’s still reviewing the forecast, but that revenue hit is concerning to her.

“That’s a lot of schools. That’s a lot of hospitals. That’s a lot of roads,” says Kerttula.

The forecasted decline is expected to influence Gov. Sean Parnell’s budget, which is due out next week.

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