The Department of Revenue released its annual spring revenue forecast Monday, and prospects do not look good for the state as oil prices sink to the lowest point since 2003 and Alaska’s other industries face sustained uncertainty amid COVID-19 related shutdowns.
Alaska Revenue Commissioner Lucinda Mahoney explained how the department took into account some of the lower expectations to craft a forecast that accounts for what can only be explained as a mounting statewide economic crisis.
“This spring revenue forecast comes during a period of extreme uncertainty. Alaska, along with the rest of the world, is responding to the COVID-19 pandemic,” Mahoney wrote. “While the human impacts of this pandemic are of highest importance, the purpose of this forecast is to attempt to estimate the state revenue impacts. The forecast is made difficult by the ongoing and unknown nature of the pandemic, compounded by highly volatile investment markets and oversupplied oil markets.”
The department’s fall 2019 revenue forecast expected fiscal 2020 revenue of $2.1 billion and fiscal 2021 revenue of $2 billion. Now the department expects fiscal 2020 revenue to fall to around $1.6 billion and fiscal 2021 revenue to fall to $1.2 billion.
Those revenue numbers do not account for a transfer from the Alaska Permanent Fund. The permanent fund transfers remain the same as projected in the fall forecast — $2.9 billion transferred to the general fund in fiscal 2020 and $3.1 billion transferred in fiscal 2021.
The permanent fund earnings reserve has been used for a combination of state spending and permanent fund dividends in recent years as the state continues to spend down its dwindling Constitutional Budget Reserve account, most of the remainder of which were included in the Legislature’s budget proposal to fund emergency COVID-19 responses.
The spring forecast accounts for a massive estimated drop of $527 million in expected revenue for fiscal 2020 due to plummeting oil prices. This includes an anticipated $461 million drop specifically in expected oil revenue.
Even more dire, the projection for fiscal 2021 reflects an anticipated drop of $815 million in revenue, including an expected $693 million drop in oil revenue.
“Petroleum revenue reductions are largely a function of a lower oil price forecast, while non-petroleum revenue reductions are due in part to impacts of COVID-19 and economic impacts primarily from the pandemic,” Mahoney wrote.
The forecast is based on Alaska North Slope oil prices remaining below $30 a barrel for the rest of fiscal 2020. As of Saturday, North Slope oil sat at $25.68 a barrel, up from the previous $21.80 on April 1, the lowest it has been since April 2003.
The department cautiously sets expected oil prices at $37 for fiscal 2021. The forecast reflects “the current extreme supply and demand imbalance,” which is anticipated to relax over the next several years.
North Slope oil prices were projected in the fall 2019 forecast to average $63.54 in fiscal 2020.
North Slope production is projected to hover around 486,400 barrels per day in fiscal 2020 and remain relatively flat at 486,500 per day in fiscal 2021. The fall forecast assumed fiscal 2020 production would sit around 492,100 barrels per day.
Mahoney notes in her introduction that the production forecast was developed prior to the oil price crash last month.
The department formulated the forecast assuming the current fiscal difficulties would persist but also hoped they won’t, she explained in her letter to Dunleavy.
“With the tremendous uncertainty and unprecedented nature of the COVID-19 crisis, it is impossible to make predictions on the stock market, oil prices, future tourist activity, or revenue with certainty,” Mahoney wrote. “In order to honor this uncertainty, the department has developed a plausible scenario upon which to base the spring revenue forecast. This scenario provides a reasonable baseline for planning purposes and highlights some of the important variables that can be monitored as events unfold over coming months.”
Contact staff writer Erin McGroarty at 459-7544. Follow her on Twitter: @FDNMpolitics.