New revenues to state make Alaskans feel a little wealthier; Governor calls for big Permanent Fund Dividends

Alaskans felt a bit wealthier last week after the Department of Revenue released its spring revenue forecast last week, an update of the fall forecast issued earlier. Higher oil prices have sharply increased the amount of funds expected.

Revenues are now estimated to be up $1.2 billion in Fiscal Year 2022, the budget year now more than half over, and $2.4 billion for FY 2023, the financial year beginning July 1. The Legislature uses the spring forecast to plan budgets.

The new forecast, if oil price expectations are met, would create a budget surplus of about $2.6 billion over the next two years, according to an analysis by the Legislative Finance Division, the Legislature’s nonpartisan financial analysis group. The Legislature uses the spring forecast to plan budgets.

The new forecast predicts a $1.65 billion surplus for FY 2022, the current budget year ending next June 30. However, that doesn’t include $953.7 million in supplemental appropriations Gov. Mike Dunleavy has requested, according to the Legislative Finance Division analysis.

When the supplemental requests are accounted for, assuming the Legislature agrees to them, the current year surplus drops to $695.7 million.

For Fiscal Year 2023, the budget year that begins next July 1, a surplus of $2.03 billion is estimated based on the new forecast. Assuming the governor will propose payments on outstanding oil tax credits next year, that surplus could drop to $1.88 billion. This doesn’t include any supplemental budget requests made next year for FY 2023, however.

Whatever the final surplus is, legislators are now talking of a $1,300 “energy” Permanent Fund Dividend, or PFD, to help people pay higher fuel costs, and the governor is pushing his plan to pay a $1,250 dividend this spring and a “regular” PFD of about $2,500, for a total of $3,700 paid this year to eligible recipients of the dividend.

The governor’s combined PFDs would cost about $2.2 billion, assuming 600,000 Alaskans apply for and qualify for the PFDs. That would take a bite out of the $2.4 billion surplus projected by the Legislature’s finance division.

Also, oil prices are volatile and are now declining, and some lawmakers are urging caution over plans to spend an apparent windfall. The COVID-19 pandemic is also emerging as a threat once again in Europe and China, which could disrupt the world economy on top of the impact of Russia’s war on Ukraine.

There are other big-ticket needs that could bite into the surplus, too. One is a $600 million request from the Municipality of Anchorage to help pay reconstruction of the Port of Alaska’s two cargo terminals, which are badly corroded and in danger of collapse in even a moderate earthquake.

Anchorage needs about $1.06 billion to replace Terminals 1 and 2, which handle the majority of food shipments and other consumer goods coming to Southcentral Alaska, Anchorage officials recently told Legislature in briefings.

In an emergency other ports in Southcentral Alaska like Port MacKenzie, Homer, Seward and Whittier would be unable to handle the volume of consumer goods needed to supply not only Anchorage but also the Mat-Su region and Interior Alaska. Port MacKenzie lacks capacity to handle large “roll-on, roll off” containers along with heavy cranes, and Homer, Seward and Whittier lack cranes.

Anchorage is prepared to fund the remaining approximately $400 million itself through a combination of port revenue bonds and federal grants, but needs the $600 million state contribution to begin the dock replacement, city officials told legislators.

If Anchorage has to fund the entire cost itself through borrowing and federal grants it can identify, a nine-fold increase in port tariffs, or the freight-handling charges, will be needed, city officials have said. Shippers will pass those costs on to consumers, which will exacerbate rising costs for food and other consumables.

Another big-ticket request to the Legislature this year is from the city of Nome, which needs about $83 million to help pay a local match for $250 million in federal funds that have been approved to expand the port of Nome.

Expansion is needed so Nome can refuel and resupply larger vessels like icebreakers and Navy vessels, which cannot now be done. Nome’s port has taken on added strategic importance with Russia’s invasion of Ukraine and new tensions with Alaska’s neighbor across the Bering Strait. If Nome can’t come up with the $83 million by November, which is when the U.S. Army Corps of Engineers will solicit bids for phase one of the project, the $250 million will go to another port on the corps’ list, most likely out of state, Nome officials told legislators.

Dunleavy is pushing his PFD plan hard, however. “Rising oil prices are benefiting government finances and hurting Alaskans,” the governor said in a statement. “I’m asking the Legislature to help alleviate economic hardship for Alaskans now, by paying every eligible resident a PFD this year of at least $3,700.

“Rural Alaska is about to see the highest fuel contracts ever. Gas prices have gone up nearly a $1 per gallon in a month in Southcentral. The consumer price index rose 7.9 percent, the fastest pace in 40 years. I urge the Legislature to offer relief to Alaskans now,” he said.

The new Revenue Forecast includes the Department’s spring forecast of oil price, oil production, and state revenue. The Spring 2022 Revenue Forecast can be found here: www.tax.alaska.gov

The transmittal letter presenting the Spring 2022 Revenue Forecast states “in terms of petroleum revenue, the revenue forecast is based on ANS (Alaska North Slope crude) oil prices of $91.68 for FY 2022 and $101.00 for FY 2023, stabilizing at $77.00 by FY 2031.

The oil price forecast is based on futures market prices through FY 2029, followed by an assumption that prices will increase with inflation thereafter. Based on the higher forecasted oil prices, petroleum is once again expected to be the largest source of UGF revenue for FY 2022 and FY 2023, contributing over 50 percent of expected state undesignated general fund revenues in each of those two years.”

As for oil production, “for FY 2021, ANS oil production averaged 486,100 barrels per day. ANS oil production is expected to average 481,800 barrels per day in FY 2022 and 502,300 barrels per day in FY 2023, before climbing to 576,600 barrels per day by FY 2031,” the transmittal letter said.