Oil price boosts surplus

Posted: Thursday, July 05, 2001

ANCHORAGE - High oil prices and booming corporate profits will give the state a larger-than-expected budget surplus, according to the Revenue Department.

The state expects to collect $2.37 billion in general unrestricted revenue. That will leave Alaska with an $87 million surplus in the budget year just ended, $71 million more than predicted in April.

State government will collect 81 percent of its general revenue from oil royalties and taxes this year. But the oil-dependent revenue scheme that made the state rich in the high-price, high-production days of the 1980s is increasingly leaving Alaska a loser.

The current budget surplus is only the second in seven years, according to a Revenue Department report issued Tuesday.

Oil production is less than half its peak in 1987. Since then, prices averaged about $18 a barrel, according to the state. Last budget year, which ended Saturday, prices averaged $27.92 a barrel.

While the high prices are providing some quick relief, they promise no long-term comfort.

As oil prices settle and oil production flattens, the state projects a shortfall of $490 million for the budget year that began Sunday. To cover recent budget gaps, legislators have dipped into a state savings account, the Constitutional Budget Reserve. But the state forecasts the reserve will be gone by 2005. During years of shortfall since 1995, the average draw on the reserve account has been $405 million.

Some conservative legislators back cutting public services to equal dwindling revenue.

Others have joined to seek other solutions, such as a statewide income tax, increased oil taxes or, possibly, using some investment profits from the Alaska Permanent Fund to cover costs.

State budget director Annalee McConnell said despite higher oil prices, budget issues remain on the agenda this year.

"Even as prices turned better, most people acknowledged this was not a reprieve from the issue," McConnell said.

Oil production in the past 12 months averaged 990,000 barrels a day. State forecasters expect production to stabilize at around 1 million barrels a day through 2007.

In addition to slightly higher oil prices, the state's share of the corporate profits of BP Exploration (Alaska) Inc., Exxon and Phillips Alaska Inc. provided an unexpected boost to revenue, said Chuck Logsdon, the state's chief oil economist. Logsdon said profits from refining and gasoline sales were higher than expected.

Most agree high prices will not last. Tuesday, OPEC members, which pump about 40 percent of the world's oil, agreed not to cut production, suggesting crude prices will continue to weaken.

"Price will fall. We can't depend on an anomaly," said Rep. Bill Hudson, a Juneau Republican.

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