Alaska’s state government is forecasting $791.3 million more in revenue over the next 15 months than they projected last fall.
Revenue Commissioner Lucinda Mahoney described the reason for the change to the Senate Finance Committee on Tuesday.
“We’ve incorporated our actual results to date and have forecast an increase of revenues for the remainder of this fiscal year, with the primary driver being the price of oil,” Mahoney said.
Both the price of oil and oil production are expected to rise in Alaska this year.
The price of oil is forecasted to rise $7.73 per barrel this year, and $13 per barrel in 2020.
Production is estimated to increase by 4,700 barrels per day by June, and then 20,100 barrels a day for the year after.
But even with the improved forecast, the state doesn’t have enough money to pay a full $2 billion in permanent fund dividends under the formula dictated by a 1982 law without drawing from other sources. Gov. Mike Dunleavy has proposed drawing additional funding from the Alaska Permanent Fund’s earnings reserve account, more than allowed under a more recent state law enacted in 2018. His proposal has raised concerns about the long-term health of the fund.
As for the state’s other sources of income — including taxes on non-oil corporate income, mining licenses, marijuana, tobacco, motor fuel, insurance premiums and fisheries — they’re expected to increase $26 million over the fall estimate this year, but the outlook for next year is $17.8 million lower than forecasted.
The change in those income sources for both years is due to corporate income tax changes included in the federal CARES Act.
There was no change in the planned draw from permanent fund earnings, since that amount is based on the previous year’s revenue growth.
Department of Revenue Chief Economist Dan Stickel said the forecast has a high degree of uncertainty.
“Seeing in the news the COVID situation is presenting some room for optimism and [in] the global economy as well, there’s reasons for optimism, and I think our forecast reflects that,” he said.
One area where the updated forecast isn’t optimistic is tourism. Under the assumption large cruise ships won’t visit the state again this year, the projection is that Alaska’s tourism sector won’t fully recover until 2024, though Stickel said the Department of Revenue hopes it improves sooner.
The forecast doesn’t account for the $1.13 billion Alaska is set to receive through the American Rescue Plan Act — the latest federal relief plan passed earlier this month. Another $230 million will flow to Alaska municipal governments.
Bethel Democratic Sen. Lyman Hoffman said he expects the administration to consult with lawmakers before finishing its plans for how to spend that money.
“I’m looking forward to working with the administration to make sure that the input of the Alaska Legislature has its so-called fingerprints on the document before the expenditures happen,” said Hoffman, the only Democrat in the Senate majority caucus.
The Department of Revenue is waiting for guidance from the federal government on how it can spend the money.