News-Miner opinion: The two-month collapse in oil prices to start 2020 should serve as yet another warning that Alaska’s revenue stream is far too reliant on the oil industry. As beneficial as the industry has been to the state and to the lives of Alaskans over the decades, reliance on one industry for the bulk of the state’s income is a problem in difficult times.
And times have certainly been difficult in recent years.
The oil industry has been Alaska’s biggest benefactor for decades, but declining production, the ever-present volatility of oil prices and rising state expenses have made reliance on oil revenue to the exclusion of other sources unwise.
The state has significantly run down its main savings account — the Constitutional Budget Reserve. That account held more than $10 billion just a few years ago; now it holds about $2 billion, and Gov. Mike Dunleavy wants to spend about 75% of that to balance his proposed budget for the next fiscal year, which starts July 1.
The Alaska Legislature — and all Alaska residents — need to take a long hard look now at what this all could mean for the years ahead.
Here’s the situation with oil in these first two months of the new year.
The price of a barrel of Alaska North Slope crude was selling for $68.39 a barrel, a little ahead of the Alaska Department of Revenue’s fall forecast, and ticked up over the first couple days of the year to $70.
Since then, though, the price has tumbled, dropping to $51.87 as of Thursday, the latest price available and the lowest price so far this year.
That’s a 26% decline in eight short weeks.
That decline, if it holds, will seriously complicate the budget discussions in the Alaska Legislature, which is meeting in Juneau now for its regular session.
Adding to the uncertainty is a citizen’s initiative to raise the taxes on the oil industry as a way to help plug the state’s continuing budget shortfalls.
The initiative, known as the Fair Share Act, was certified Wednesday by the Division of Elections, meaning enough of the signatures had been verified to cause it to be on the ballot of one of the statewide elections later this year. It’s unclear which election because ballot placement is tied by law to the adjournment date of the Legislature’s regular session, which can vary.
The ballot measure seeks to raise production taxes on the three largest oil fields in Alaska — Prudhoe Bay, Kuparuk River and Alpine. It applies to fields above 68 degrees north latitude and which have, according to the language of the proposal, produced “in excess of 40,000 barrels of oil per day in the previous calendar year and in excess of 400,000,000 of total cumulative oil production.”
The ballot measure states that “For other oil production, the tax shall remain unchanged by this act.”
So two big subjects are about to collide: the budget process, with its competing views among the governor and the various factions within the Legislature, and the oil tax ballot measure.
Alaska residents had enough to think about already going into the second budget cycle of Gov. Dunleavy’s administration. Weighing the impact, whether positive or negative, of the oil tax ballot measure just made the thinking a lot more complicated.