State revenues expected to rise via tax rate, oil

Report forecasts Alaska will have $1.4 billion more than last year

Posted: Friday, January 11, 2008

JUNEAU - A new tax rate and soaring oil prices will help boost state revenue for the fiscal year ending June 30, according to a Department of Revenue forecast.

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The report, released Wednesday, says the state will have $1.4 billion more than last year in unrestricted revenue, the money pool that generates most of the legislative and public debate.

That's enough to fund the state's public education system for one year with about $300 million left over.

The state gets more than 85 percent of its revenue from oil production. This includes revenue from royalties, production taxes, property taxes and corporate income taxes.

Still, declining North Slope oil production and lower price forecasts will bring revenues below last year's levels by 2009, the report says.

During last November's special session, the Legislature approved a base tax rate hike from 22.5 percent to 25 percent on oil companies' net profits.

Additionally, oil prices had been pushing the $100 a barrel mark toward the end of last year.

The report comes out just as lawmakers are scheduled to return for a 90-day legislative session on Tuesday.

It's designed to help lawmakers craft the state budget for the upcoming fiscal year, which begins July 1.

"This is the guide to what we believe the future will look like in the way of revenue in the coming two years," said the state's chief economist Michael Williams.

In a letter to Gov. Sarah Palin, Revenue Commissioner Pat Galvin said crude oil prices will average $72.64 per barrel for the current fiscal year (it averaged $80.51 per barrel as of Dec. 20).

But for the upcoming fiscal year, Galvin writes the state is forecasting an average of $66.32 per barrel and $63.40 per barrel in fiscal year 2010.

Average monthly oil prices last year went from $54.51 a barrel in January to $91.69 barrel in December, according to U.S. Department of Energy data.

It's that kind of volatility that is keeping the state's price forecasts tempered, Galvin wrote to Palin.

"We believe that our long-term view - that oil prices will eventually return to historical norms - should not be unduly influenced by the current pricing environment where oil prices are very high and extremely volatile," Galvin wrote.

Galvin continued with his conservative tone, citing a projected decline in North Slope oil production from 731,000 barrels per day to 701,000 barrels per day in 2009.

He writes: "In preparing our fall forecast, we have incorporated more down time than we had in earlier forecasts due to the aging of the infrastructure on the North Slope and the belief that more maintenance and down time will be required in the future."

Last month, Palin proposed a 4 percent increase in spending, a figure many lawmakers seemed to think was reasonable.

Rep. Mike Chenault, a Nikiski Republican who serves as the co-chair of the House Finance Committee, said now is the time to rein in spending.

"While we know revenue will be high next year and probably the next, we need to keep (spending) as low as we can to make sure we have money last into the future," he said.

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