Alaska’s revenue forecast, foundation of the state budget, is billions higher as oil prices rise

JUNEAU — Forecasters at the Alaska Department of Revenue have raised the state’s two-year forecast of oil revenue by $3.6 billion, Gov. Mike Dunleavy said Tuesday. At present levels of spending, the forecast would create a multibillion-dollar budget surplus.

“It’s actually really good news,” Dunleavy said, urging lawmakers to approve a large Permanent Fund dividend and to save much of the surplus.

State legislators, who rely on the annual spring forecast to write Alaska’s budget for the coming year, were enthusiastic but cautious. Global oil prices have been running above the state’s prior predictions, then surged after the Russia invasion of Ukraine. That surge has ebbed, but prices remain high.

“I think it’s good to be more conservative when we’ve got these optimistic numbers,” said Rep. Neal Foster, D-Nome and co-chair of the House Finance Committee.

Each spring, Alaska lawmakers set the state’s budget for the upcoming fiscal year, which begins July 1. The revenue forecast determines how much money is available to spend. Any differences between the forecast and what actually happens are reconciled in the following year.

In Fiscal Year 2023, which starts July 1, the new forecast is for $8.33 billion, up $2.4 billion from a forecast in December. In the current fiscal year, which ends June 30, state revenue is expected to be $6.95 billion, an increase of $1.2 billion from the state’s prior estimate.

Each of these figures is far above what the state has spent in the recent past. Last spring, the Alaska Legislature approved a budget of $5.3 billion, and lawmakers expected that they would need to spend from savings to pay for part of that figure.

Now, they’re looking at a surplus and the possibility of a special energy rebate or supplemental Permanent Fund dividend.

The House Finance Committee, which had been expected to advance a draft of the state budget in early March, paused its work for two weeks as it awaited the new forecast.

With the forecast in hand, Foster said the committee will introduce a new version of the budget on Wednesday.

Foster, Dunleavy and others said there’s cause for caution as the budget process begins.

“We don’t know what tomorrow is going to bring. We don’t know what next week is going to bring,” Dunleavy said.

The Crude Oil Volatility Index, which attempts to quantify the oil market’s past and expected swings, stood Tuesday at higher-than-normal levels last seen at the start of the Omicron COVID-19 wave and the 2020 presidential election.

“Let’s not live in a state of high oil euphoria, when all of our forecasts are for lower numbers than that,” said Sen. Bert Stedman, R-Sitka, referring to forecasts from the Federal Reserve Bank of Dallas and the U.S. Energy Information Administration.

Alaska’s oil-revenue forecast is based on a five-day window of oil market prices. The period used for the latest forecast began Wednesday, when prices exceeded $120 per barrel.

“If they would have that done that two weeks ago, or a month ago or three, or if they made it six months later, it would have been totally different,” said Stedman’s lead budget aide, Pete Ecklund.

The spring forecast estimates oil prices at $101 per barrel, an increase of $30 from December. Stedman said members of the Senate Finance Committee want to use a more conservative figure.

“At the table here, we’ve been having conversations of the FY23 budget and looking at like $80 going forward, versus $101,” he said.

At $80 per barrel, the state would collect about $6.7 billion in FY23, according to a price sensitivity chart published last year by the Department of Revenue.

Stedman suggested that if prices run higher than that, the state could save the result and spend later, if wanted.

Foster said leading members of the House have a similar view.

“If we have money at the end of the day, that goes into savings, and there’s no harm in that,” Foster said.