Twice a year, Alaska’s Department of Revenue faces a difficult task: estimating how much money the state will have to spend. The forecast is at the heart of some of the biggest debates in Juneau because it tells the governor and the Legislature how much money they’ll have to fight over.
That figure is even harder to predict this year, with war-induced turmoil in the oil markets.
The revenue forecast used to be fueled by bagels, cream cheese and M&Ms, said Larry Persily, a newspaper publisher, columnist and former deputy commissioner of the Department of Revenue in the late 1990s and early 2000s.
“This was several hours going through this,” Persily said. “Gotta have sugar.”
Persily said officials from a multiple departments would gather in a conference room and give presentations about all the different things influencing two extremely important numbers: how much Alaska North Slope crude would come out of the ground, and how much a barrel of it would sell for.
Their job, Persily said, was essentially to come up with their best guess of where prices and production would land.
“Everybody at the end of the presentations, the end of the day, would get to vote where they thought low, middle, high price projections would be for that year, the next year, the next year,” Persily said.
They would tally up the votes, and there you had it — the oil price and production forecast.
Oil isn’t the only thing that brings in revenue. The state also takes in other sources of revenue, such as fish taxes, cruise ship passenger fees, mining, and corporate taxes. Since 2018, earnings from the Permanent Fund have been the single largest source of general-purpose dollars in the state budget, and are not nearly as hard to predict as the oil market.
The process has evolved over the years. Still, Ken Alper, the Department of Revenue’s tax director in the late 2010s, said it was largely in-house, with officials looking at the market and oil analysts’ predictions.
“We'd have lunch, and we would talk about what different analysts were saying, what the futures markets were,” Alper said.
By 2021, though, the Department of Revenue was leaning more heavily on the futures market instead of making its own distinct forecast. These days, the Department outsources the price forecasting to the futures market. That is, what investors betting real money think the price will be a month from now, six months from now, five years from now, and so on.
To do that, Alper said Revenue Department officials pick a date and take a look at what the market said about prices in the five trading days leading up to it.
“And by unhappy coincidence, I guess, just by the oddity of history this year, that day was in early March,” he said.
March 11, 2026 to be exact, a day before the forecast was released, and just under two weeks into the U.S. and Israel’s war with Iran. The war led Iran to functionally close the Strait of Hormuz, which carries about one-fifth of the world’s oil.
Since then, oil prices have been on a wild ride. This month, they’re more volatile than any time since the depths of the pandemic in April 2020, according to an index known as OVX.
The pandemic, when oil prices went negative for a day, is the only time in the index’s nearly 20-year history when prices were more volatile than they are right now. Dan Stickel, the Department of Revenue’s chief economist, spoke to lawmakers earlier this month about the volatility.
“The level of uncertainty around future prices in the oil markets now is higher than during the peaks of the Great Recession in 2008, 2009 and it's higher than when Russia invaded Ukraine,” Stickel said.
Lawmakers rely on the spring forecast in mid-March to make budget decisions, so the Department of Revenue had to come up with something. They can’t exactly wait until the war is over.
So they looked at the market. They took five days in early March shortly before the forecast was released. At that point, the futures market thought oil would average just over $91 a barrel through the end of June. That translates into more than half a billion dollars for legislators to fight over. And, based on the futures market, another half billion next year.
But the Department of Revenue is taking great pains to underscore how uncertain they are about where oil prices are actually going.
“Looking a couple of months out, there is a 10% chance that oil prices will go well over $200 per barrel later this fiscal year,” Stickel said. “There is a 10% chance that oil prices will fall to $30 per barrel later this fiscal year.”
That’s according to the options market, which would be worth about $1.5 billion in revenues, so the state could have hundreds of millions more, or hundreds of millions less than expected.
Where things land, though, is anybody’s guess.
