As oil prices rise, Alaska projects $1 billion-plus in extra state revenue

JUNEAU — High oil prices may deliver more than $1 billion in unexpected revenue to the state of Alaska in the current fiscal year, and both the Alaska Legislature and Gov. Mike Dunleavy are beginning to debate whether they should save that money or spend it.

“Based on current oil prices, there is the potential for a little bit of extra money for fiscal year 2022 and 2023,” said Dan Stickel, chief economist for the Alaska Department of Revenue.

Last spring, the Department of Revenue expected Alaska oil prices to average $61 per barrel and the state to produce an average of 471,300 barrels per day, enough for Alaska to earn $1.29 billion in oil revenue between July 1, 2021 and June 30, 2022, what the state calls Fiscal Year 2022.

The Alaska Legislature built its budget around those amounts, but through the first six months of the fiscal year, oil has been worth significantly more.

From July 1 through Jan. 18, oil averaged $77.47 per barrel and production averaged 469,469 barrels per day. Instead of $1.29 billion, the state is now expecting about twice that amount.

Speaking to the House and Senate finance committees this week, Stickel cautioned that COVID-19 could change that forecast. If the virus surges again, dampening international travel demand, that would deflate crude oil prices.

But this week, the International Energy Agency said oil demand was on track to reach pre-pandemic levels, and prices have hit their highest level since 2014.

Oil isn’t the state’s leading source of revenue — an annual transfer from the Alaska Permanent Fund is larger — but the extra money promises to make a big difference.

In June last year, the Legislature approved — and Gov. Mike Dunleavy signed, after vetoes — a budget that spends $5.3 billion but only has $4.7 billion in reliable revenue to pay for it.

That left a $571.8 million deficit, according to figures published by the nonpartisan Legislative Finance Division. In their budget, lawmakers closed that gap with money from a state savings account and with federal COVID-19 economic aid.

Now, the expectation is $6 billion in revenue, and the state would have more than enough normal revenue to fill the deficit. It would be the first time in 10 years that the state has not had a deficit, according to the finance division.

But there are other options. In December, Gov. Mike Dunleavy proposed spending $930.7 million in new spending, absorbing almost all of the extra oil revenue expected at that point.

The biggest chunk, about $796 million, would pay for a bonus Permanent Fund dividend of more than $1,200 to everyone who received a 2021 dividend.

The governor is scheduled to release a revised supplemental budget in February and could update or change that plan.

Lawmakers, too, will be debating what to do. The Legislature convened Tuesday, and finance committees in both the House and Senate have begun meeting. In a series of interviews and in committee meetings, lawmakers said it’s too early to make decisions on spending, particularly given the volatility of oil.

“What happens if the bottom falls out?” said Rep. Bryce Edgmon, I-Dillingham.