When it comes to the state’s bottom line, the tax division’s revenue sources book predicts a patchwork of good and bad news for the state.
The good news is oil prices are forecast to go up.
The bad news? The money coming in from oil revenue is nowhere near enough to close the state’s budget gap and production on the North Slope is forecast to go down.
This holiday season, lawmakers and oil and gas executives would probably love a good crystal ball: one that might give them a glimpse of the future price of oil, or how much the state is going to produce next year, and maybe a look at the end of the legislative session to find out what’s going to happen with all of those tax proposals floating around.
Unfortunately, no such soothsayer exists, and they’ll probably have to rely on the state’s Department of Revenue.
Earlier this week, analysts released their semi-annual revenue sources book. It’s a snapshot of the state’s financial health. It has current and historical income information. It also has predictions for the price of oil for the next few years: how much the state is going to produce, what kind of money the state expects to have available to spend and, this year, a whole chapter on the potential impacts of an income or sales tax.
And, while it’s no crystal ball, it can help with the economic forecast.
Oil prices are predicted to go up. During this fiscal year, the state predicts they’ll average $46.81 a barrel. And that’s expected to go up to $54 per barrel next year.
State tax division director Ken Alper said that price jump is going to help the state.
“A good rule of thumb for Alaska at the range of prices we’re at right now is every dollar in the price of oil is worth about $30 million,” Alper said.
So, a $10 jump in the price of oil means that, over the course of the next year, the state should get about $300 million in additional revenue. But that’s not nearly enough to cover the state’s $3 billion budget deficit.
“It’s substantial. No one should ever scoff at $300 million,” Alper said. “But that’s not balancing the budget.”
One other consequence of that slight jump in oil prices? The state’s going from a price that’s below the oil industry’s break-even point, to above it.
That price is around $45 a barrel.
That break-even point is very important for the state. When oil prices fall below it, the major producers on the North Slope start losing money. And they can turn those operating losses into credits that can be used to offset taxes they owe the state.
Producers are still required to pay a minimum tax. However, if it carries into the next year, the companies are able to use those credits to offset even that minimum tax.
“So we were seeing production tax revenues approaching zero for the next several years because of the very low prices we were seeing now,” Alper said.
So, as oil prices inch upward, the state’s tax revenue picture starts to look at little better.
“That phenomenon falls off a little bit, and we now are starting to see a couple hundred million dollars in production tax revenues in the near future. Not the billions that we had in the past when prices were higher, but at least not zero,” Alper said.
But there are still significant challenges ahead for the state.
Oil production is forecast to go down, and prices aren’t forecast to get above $88 per barrel in the next decade.
And, the legislature is gearing up for a fight over oil tax credits, broad-based taxes and whether to tap the permanent fund dividend to solve the state’s budget crisis.
Rashah McChesney is a photojournalist turned radio journalist who has been telling stories in Alaska since 2012. Before joining Alaska's Energy Desk, she worked at Kenai's Peninsula Clarion and the Juneau bureau of the Associated Press. She is a graduate of Iowa State University's Greenlee Journalism School and has worked in public television, newspapers and now radio, all in the quest to become the Swiss Army knife of storytellers.
