Higher oil price could affect debate on Alaska’s long-term budget plan

Rep. Dan Ortiz, I-Ketchikan, speaks during a House floor session in Juneau in March 2019. Ortiz said on Tuesday that the improved state revenue forecast will likely reduce support for new taxes. (Photo by Skip Gray/360 North)

Rep. Dan Ortiz, I-Ketchikan, has been looking at a proposal that would rewrite the formula for setting Permanent Fund dividends, while also adding taxes. But with the recent price of oil raising state revenue, he said the case for taxes is harder to make. 

“It’s always going to be a lift for legislators to come to a consensus on added revenue — or a tax, passing a tax — and with this new revenue forecast, I think it makes it that much more difficult,” he said. 

The new revenue forecast is a preliminary report the state Department of Revenue released on Friday. It forecasts higher oil prices will add $1.2 billion to the budget this year. And if those prices hold up, an average of $1 billion in additional revenue would come in every year, compared with the spring forecast

That could be enough money to pay for Gov. Mike Dunleavy’s PFD proposal, without a new tax, or substantial state budget cuts, based on a computer model that nonpartisan budget analysts use. But lawmakers have noted that the price of oil is unpredictable.

Ortiz that even with the higher forecast, he’s not more likely to back Dunleavy’s PFD proposal. He said it must be weighed against the state’s other needs and the importance of protecting the Permanent Fund. 

“To put a quote ‘long-term fiscal plan’ on the basis of recent oil price increases holding? To me? No,” he said. “No, I just don’t think that that’s sound policy.”

While the House majority caucus that Ortiz is a part of has largely opposed Dunleavy’s PFD proposals, most minority caucus Republicans support them.

Nikiski Republican Rep. Ben Carpenter said that while oil prices are unpredictable, the Legislature has to begin somewhere in analyzing policy choices. 

“You know, it’s been a number of years since we’ve had real high oil prices,” he said. “And maybe people have forgotten what it’s like to have those large revenue streams coming in from the oil companies.”

Carpenter said he hopes that more revenue even in the short term can allow legislators to consider the long term. 

“When we don’t have enough money to go around for the budget and difficult decisions have to be made, that raises the blood pressure of all of the decision-makers,” he said. “It makes conversations more difficult and emotions get high.”

Brian Fechter, the state’s deputy revenue commissioner, worked on the forecast. Fechter said the state is more confident in the short-term forecast. 

He said more detailed information will be included in the final forecast, which is scheduled for December.

Fechter said the department knows that oil prices can turn on a dime. But he said that even short-term price increases can bring long-term benefits. 

“A higher oil price means higher royalties, which means more money is getting deposited into the Permanent Fund, which benefits us in those future years,” he said.

Dunleavy also said he understands oil prices are volatile.

“I’ve been here long enough to experience it, since the ’80s,” he said.

But he said a day before the forecast was released that some lawmakers skeptical of relying on high oil prices were already opposed to his proposals. 

“Nobody knows what tomorrow’s going to bring,” he said. “We didn’t predict a pandemic. We can’t predict earthquakes. We understand that. We do our best guesses and our best estimates.”

With the fourth special session coming to an end on Tuesday, lawmakers are looking toward the next regular session.

Fairbanks Republican Rep. Bart LeBon said the revenue estimates can help. But at the end of the day, he said, the Legislature will have to weigh the state’s needs each year whatever the price of oil is.

“Today, we’re north of $80. A year from now, we could be under $50,” he said. “I just don’t know how to predict the future trends in the price of oil.”

The first day of the next regular session is Jan. 18.

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Andrew Kitchenman is the state government and politics reporter for Alaska Public Media and KTOO in Juneau. Reach him at akitchenman@alaskapublic.org.

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