Capitol Live: Alaska Municipal League presents local impacts of state budget

Follow along with live updates from Alaska’s Capitol.

1:55 p.m.

Andreassen is showing a slide that breaks down the impacts of budgetary items and how many communities each item impacts. The Power Cost Equalization fund affects 115 out of 165 communities.

“For the seven municipalities affected by the petroleum property tax, it’s $439 million,” he says.

— Mollie Barnes

1:35 p.m.

The House Finance committee is meeting. They are having a presentation on the Municipal Impact Analysis of the budget.

The Alaska Municipal League is running the presentation. AML is older than the state, and one of their main goals is to advocate on behalf of municipalities.

“There are a number of driving factors when it comes to direct municipal impact,” says Nils Andreassen, the executive director of the AML.

— Mollie Barnes

9:55 a.m.

Students from the University of Alaska system plan to hold a rally at noon today in front of the Capitol.

Former UAS Chancellor John Pugh, Nick Bursell, president of the UAS Juneau campus student government, USUAF Senator Audrey Kirby and Kachemak Bay Student Zobeida Rudkin are the planned speakers for the rally.

— Mollie Barnes

9:45 a.m.

“We should always recognize that predicting oil prices is a very difficult thing to do… right now in the near term there are a lot of factors, including trade, that could disrupt oil production,” says Ed King, an economic analyst for the Office of Budget and Management. “There’s a lot of things that we’re paying attention to that could push that price down…we don’t really know what’s going to happen in the future and there’s a lot of things that are going to prove our forecast wrong.”

He says there’s nothing that should be alarming of the forecast, because it’s in the range of what most analysts are predicting.

Now Tangeman is switching to talk about the oil production forecast, which he says hasn’t changed much since last fall.

“We don’t assume that a field will come on in five years as predicted at full production at the time they are estimating,” Tangeman says. “The prudent way for the department to account for is to put a risking mechanism in there.”

So while the number hovers around 500,000 barrels for 10 years, which is flat production compared to the past decade, there is upside if some larger fields come on at expected rates, Tangeman says.

The department is also predicting higher than expected prices for development costs for oil fields in the North Slope.

“If all of those new fields come in as expected, this could actually end up being a conservative forecast,” says Daniel Stickel from the Department of Revenue.

— Mollie Barnes

9:30 a.m.

“When the legislature passed the budget last spring, they were estimating $63 (a barrel) oil and projected about a $700 million deficit for the year,” Tangeman says. “We now see that the price of oil has been well about $63 (a barrel)… we are forecasting about $69 (a barrel).”

“We saw quite a bit of volatility in fall 2018,” Tangeman says, which led to a price forecast by former Governor Walker’s office that was initially a little high. When Gov. Mike Dunleavy came into office, his department did a forecast that was a little more conservative in December. But now that the market has stabilized a bit, the department is predicting a more positive revenue forecast for 2020.

Long-term (2021 and later) oil price forecast remains unchanged from the fall. That inflation adjusted forecast remains in the low to mid $60s range for the price per barrel of oil.

— Mollie Barnes

9:10 a.m.

Tangeman is presenting the new revenue forecast to the Senate Finance committee now.

FY19 unrestricted revenue forecast is reduced by about $89 million compared to the fall forecast, despite higher forecasted near-term oil prices. The primary changes to FY19 forecast are:

  • Production tax reduced by $80 million
  • Non-petroleum CIT reduced by $15 million due to lower than expected payments in December 2018
  • Other revenues reduced by $2 million due to a variety of smaller nonpetroleum forecast changes
  • Royalties increased by $8 million due to higher oil prices and despite lower production

The unrestricted revenue forecast for FY20 is increased by about $39 million compared to the fall forecast. The primary changes to that forecast are:

  • Production tax increased by $45 million due to higher prices, partially offset by lower production
  • Royalties increased by $19 million due to higher oil prices and despite lower production
  • Non-petroleum CIT reduced by $15 million partially due to weaker nonprecious minerals prices
  • Other revenues reduced by $10 million due to a variety of smaller nonpetroleum forecast changes

— Mollie Barnes

9 a.m.

The Department of Revenue Commissioner Bruce Tangeman released the spring 2019 revenue forecast late last week. The spring forecast includes the Department’s updated FY19, FY20, and long-term forecasts for oil price, oil production, and state revenue.

Not counting transfers from the Permanent Fund, the Department is forecasting unrestricted revenue of $2.7 billion in FY 2019 and $2.3 billion in FY 2020.

Additionally, the Permanent Fund is expected to transfer $2.7 billion to the general fund in FY 2019 and $2.9 billion to the general fund in FY 2020. These amounts are available both for payment of Permanent Fund Dividends and for general government spending.

Gov. Mike Dunleavy has proposed paying a larger PFD out to residents rather than using it for government spending like in previous years.

Alaska North Slope oil prices are forecast to average $68.90 per barrel for FY 2019 and $66.00 for FY 2020. Long term, the Department continues to expect oil prices to stabilize in the low 60’s in real (inflation-adjusted) dollars.

The revenue forecast is also based on projected North Slope oil production averaging 511,500 barrels per day in FY 2019 and 529,500 barrels per day in FY 2020. Production is still expected to remain around 500,000 barrels per day over the next decade as new developments offset production declines from existing fields.

See the full forecast here.

— Mollie Barnes

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