High oil prices driven by the war in Ukraine, tight global oil supplies and OPEC’s decision not to pump more crude are adding tens of millions of dollars per month to the Alaska state treasury.
The rush of oil revenues is boosting the governor’s push for a larger Permanent Fund dividend for individual Alaskans this fall, while also fueling legislative interest to increase funding for education and deferred maintenance — or just save some of the money for the next time oil prices fall.
The Alaska Department of Revenue last week issued its annual spring forecast, adding $30 per barrel to its price projection of just three months ago for the fiscal year that starts July 1. Global oil prices started this week around $110 a barrel, almost double from a year ago.
The department projects prices will average over $100 for the next fiscal year.
The department’s latest forecast — if its oil-price assumptions come true — would mean an additional $3.6 billion in unrestricted state general fund revenues from oil taxes and royalties for the current and the next fiscal years combined.
At a news conference March 15, Gov. Mike Dunleavy touted the state’s new wealth. Beyond stashing some of the money in savings, the governor offered one concrete policy priority in response: a “much higher PFD than people have been contemplating.” He said lawmakers should approve a dividend of “at least $3,700.” That would be more than triple last year’s $1,114.
The governor was non-committal about boosting state funding for K-12 education. “I’d have to see what the bill looks like,” he said of any legislation to change the funding formula that has not changed since the 2017 school year.
Lawmakers say they have other priorities for the surplus beyond higher dividends, including education and a $2 billion maintenance backlog that’s been neglected during tight budget years. But even those who have advocated for restraint on dividends in the past say an extra payment is merited this year as Alaskans face rising fuel prices and the highest rate of inflation in decades.
“Knowing that the cost of living is going to spike upward substantially for Alaskans, I think the discussion of an energy relief package for this year is completely warranted,” said Dillingham Rep. Bryce Edgmon, part of the House majority leadership.
Members of the largely-Democratic House majority have proposed a $1,300 “energy relief check” on top of a $1,300 dividend, totaling a $2,600 state payment to eligible Alaskans this year, more than double last year’s PFD. The combined cost would be roughly $1.6 billion, almost one-quarter of total unrestricted state revenues from oil, the annual draw on Permanent Fund earnings and all other taxes.
The House-led proposal would leave an surplus of just $800 million to transfer into state savings in the coming fiscal year — and even that amount is only possible after plugging the budget with $300 million in leftover federal pandemic relief money, according to legislative projections.
Dunleavy’s $3,700 dividend proposal would cost an additional $700 million.
In recent years, earnings from the $81 billion Permanent Fund — a pool of state investments originally seeded with oil revenue — have eclipsed petroleum as Alaska’s largest source of cash, amid diminished oil production and lower prices.
Those declines blew a multibillion-dollar hole in the state budget. Lawmakers, over the past decade, have spent some $15 billion that they’d socked away in Alaska’s two primary savings accounts.
But the recent price spike has reversed that trend, and oil is once again expected to generate the majority of Alaska’s unrestricted revenue this year and next.
“Quite a shift since last June, when we had to scrape nickels and dimes together,” said Sitka’s Bert Stedman, co-chair of the Senate Finance Committee.
Education advocates note that the education spending formula has not increased since 2017. Schools are now being hit with the same steep increases in fuel and other costs that are hitting individuals, said Lisa Parady, head of the Alaska Council of School Administrators.
“We’re in crisis here,” she said. “I don’t know how we can be only focused on the dividend, when we haven’t inflation-proofed education for so long.”
Some lawmakers say they’re acutely aware of the challenges facing Alaska schools and will keep them in mind as they draft the state budget in the final weeks of the legislative session.
They also say the Legislature is not forgetting its lean years — even if they acknowledge they’re likely to spend more this year than last.
“When I think back to the last time when I was chairman, when we had a revenue spike, the savings conversation was harder to get going in the building,” said Stedman, who has served in the Legislature since 2003. “This go-around, explaining to some of the newer members how we did it last time resonated really well with them.”
Stedman and Anchorage Rep. Ivy Spohnholz both said lawmakers are eyeing additional spending on deferred maintenance — as opposed to new projects that could saddle the state with higher ongoing bills in the future, when it’s unlikely that oil revenue will continue at the same level.
“We also need to be thinking about the long term, and not just thinking about today,” said Spohnholz, chair of the House Ways and Means Committee.
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