State revenue to rise next year due to higher oil prices; $200 extra PFD check could come later this year

State revenue is expected to rise marginally in the state’s upcoming Fiscal Year 2025 budget mainly due to an expected rise in oil prices and oil production, the state Department of Revenue said Wednesday, March 13.

The department issued an update to its most recent prior forecast, made last December. The spring forecast is used by the Legislature to finalize budgets for the new fiscal year, which begins July 1.

An increase of $58 million is now expected in the current budget year, FY 2024, compared with the previous forecast made in December. For FY 2025, revenues are projected to be $140 million higher than those forecast in December.

The extra money creates a little breathing room in what otherwise would be a very tight FY 2025 budget, Sen. Bert Stedman, R-Sitka, said in a briefing for reporters on Wednesday. Added dollars open the possibility of a somewhat higher state capital budget, he said. Stedman cochairs the Senate Finance Committee.

Sen. Click Bishop, R-Fairbanks, said in the briefing he hopes some of the money can go to deferred maintenance in schools. “We have kids in rural schools where the fire alarm systems are no longer working,” because of the lack of maintenance funds, he said. Bishop is a member of the Senate Finance Committee.

One other new development is that despite the prospect of tighter budgets there is likely enough for a $200 supplemental Permanent Fund Dividend paid out this fall, Stedman said. The extra PFD was provided for last year to be paid of oil prices stay in a certain range, which they have.

Alaska is now expected to receive $15.4 billion in current year total income in FY 2024 including state and federal funds. In FY 2025 total revenues are expected to be $16.5 billion.

Undesignated General Fund revenues, or those free of restrictions and which the Legislature can appropriate to any purpose, are estimated now at $3.65 billion for FY 2024 and are expected to rise to $3.73 billion in FY 2025, the next budget year. The Legislature is now working on the FY 2025 budget.

Oil production is expected to increase to an average of 471,200 barrels per day in the next fiscal year, up from 467,600 barrels per day in current FY 2024. However, the production estimate for the current year, FY 2024, is lower than what was estimated in December.

FY 2024 production was then forecast at a 478,500 barrels per day average. In the new forecast it is 467,600 barrels per day. Generally, the larger oil fields on the North Slope are declining faster than state officials had expected.

Non-petroleum revenues, mostly from various taxes on businesses, are expected to increase from $461 million in current-year FY 2025 to $517 million in FY 2025 next year. There will be volatility in certain kinds of taxes such as on fisheries due to deteriorated market condition, so the forecast for FY 2025 may wind up lower.

Some other good news is that the annual contribution to the state budget from the Alaska Permanent Fund earnings will increase by $200 million in FY 2025 to $3.7 billion, up from $3.5 billion in the current FY 2024.

The Fund’s contribution will make up 54 percent of the state’s Undesignated General Fund, or UGF, revenues in the current year, according to the forecast released Wednesday. This will increase to as much as 62 percent for each of the next ten years, the revenue department said.

Since oil production began on the North Slope in 1977 petroleum revenues have paid for the bulk of the state budget. This allowed for the state’s individual income tax to be repealed in the early 1970s. Ever since then the state has funded its budget without taxes on citizens, although businesses pay state taxes.

However, oil production declined steadily over the years and oil prices took a severe drop in 2016, after which the Legislature decided a diversification of the state’s revenue sources was needed.

Currently the Fund’s payment is based on a percent-of-market-value calculation that has been used since the Legislature authorized it in 2018. An average of 5 percent of the Fund’s total value over the past five years of income is used as a basis for the annual payment. It is a procedure commonly used by large endowment funds which make annual payouts.