Not surprisingly, Alaska’s fiscal picture got worse with the March 21 release of the 2016 Spring Revenue Forecast.
Total state revenue for the 2016 fiscal year, which ends June 30, is now projected to be about $3.6 billion, down more than 60 percent from the $9.5 billion of income estimated in the Fall 2015 Revenue Forecast released last December.
The vast majority of the disparity is attributable to poor financial market performance since the start of the New Year, which for the State of Alaska translates into lost income from Permanent Fund investments.
The Dow Jones Industrial Average lost 5.5 percent in January and is currently down nearly 3 percent from a year ago.
As a result, the fall outlook for investment revenue had the state taking in $3.8 billion in fiscal 2016, while the spring forecast expects the Fund to take a loss of just more than $2 billion for the year.
The Permanent Fund ended fiscal year 2015 with $55.9 billion in total assets and fell as low as the $50 billion range in January. However, Revenue Commissioner Randy Hoffbeck noted in a press briefing that markets have been on the rebound even since the spring forecast was compiled.
The Fund held $52.7 billion as of March 18, according to the Alaska Permanent Fund Corp.
Total revenue was $8.5 billion in 2015 and is expected to rebound to $8.2 billion in the 2017 fiscal year.
Unrestricted General Fund revenue for 2016 was also revised down by $277 million, to about $1.3 billion in the latest forecast, as lower-than-expected oil prices more than offset an upward bump in the state’s oil production projection.
The spring estimate for the average price in fiscal 2016 is $39.50 per barrel for Alaska North Slope crude, compared to the fall estimate of $49.50 per barrel.
The 2016 production estimate, on the other hand, increased about 3 percent from just over 500,000 barrels per day in fall to 516,700 barrels per day in the latest calculation based on data provided by the producers, Hoffbeck said.
In 2017, production is expected to fall back to about 506,000 barrels per day. Unrestricted revenue will fall as well, according to the forecast, to just more than $1.2 billion on a price projection of about $40 per barrel for next fiscal year, which is $564 million less than the fall forecast.
Depending on how much is cut from the final state budget, if the lower 2017 revenue projection holds true it could increase the budget deficit that has been pegged at $3.5 billion to nearly $4 billion for next fiscal year.
Diminishing oil income has also diminished the state’s dependence on it as a revenue source from supplying nearly 90 percent of all unrestricted state funds in prior years to 55-60 percent going forward, according to Hoffbeck.
Long-term, the Revenue Department expects oil to stabilize in the $60 per barrel range by 2021, which Hoffbeck said partially reflects the historical inflation-adjusted average price as well as the range where shale oil, which can be brought into production quickly, becomes profitable.
“It makes sense that $60 would be kind of a ceiling we would bump into on oil price,” he said.
The annual spring revenue forecast is typically released in early April, but Gov. Bill Walker said the preliminary forecast was released March 21 to better inform the Legislature and the public as major structural changes to how the state manages its money are contemplated during the last weeks of the legislative session.
“The more information that’s available sooner, the better,” Walker said during the press briefing.
Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at firstname.lastname@example.org.