New revenue forecast shrinks Alaska’s budget deficit a bit

Gov. Bill Walker will release his budget proposal for the fiscal year that starts July 1, and when he does, the state’s fiscal picture will be slightly better than it was last week.

On Tuesday, the Alaska Department of Revenue announced the state is earning more money than expected this year, and Alaska’s annual deficit will temporarily shrink as a result. The deficit now stands at $2.25 billion, a figure that will increase in the next fiscal year because the Alaska Legislature’s approved budget spends from some accounts that will be empty by July 1.

Despite that increase, Tuesday’s announcement is still good news because it means the state will need to spend less this year from the Constitutional Budget Reserve — the main savings account outside the Permanent Fund — to make ends meet.

In October, lawmakers were given a preliminary revenue forecast and told that the reserve was unlikely to have enough money to cover Alaska’s deficit in the next fiscal year, which starts July 1. It is not yet clear whether the increased earnings will alter that situation, but the improved forecast increases the likelihood that the reserve will stretch one more year.

Announcing the better forecast this week, the state said it received unexpected oil production tax payments and was benefiting from higher oil prices as well as an adjusted formula for oil royalties. As a result, it will have $247 million more than previously expected. Some of that money is required to go to the Alaska Permanent Fund, which means it isn’t available for spending on state services.

At current prices, a $1 increase (or decrease) in oil prices equals a $30 million change in state revenue.

In October, the state expected oil prices to average $54 per barrel in the current fiscal year. That estimate has been bumped up to $56 per barrel, and the increase accounts for about a quarter of the difference between the preliminary forecast and the official fall forecast.

Another $58 million was added to the state’s budget sheets because the Legislature typically sends more money to the Alaska Permanent Fund than it is required to do. That didn’t happen in this fiscal year: That money was spent on state services instead, and it’s part of the $247 million.

Over the next decade, the state expects oil prices to increase to $75 per barrel, a figure that would significantly boost state revenue. Despite that increase, $75 per barrel is still well below the figure needed to balance the state budget, even without any expected increases for inflation or rising health care costs.


• Contact reporter James Brooks at james.k.brooks@juneauempire.com


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