Thanks to skyrocketing oil prices, Alaska is reaping billions of U.S. dollars more than expected. As crude oil surged in recent months, the state where oil revenues account for a large part of the budget, general fund revenues, and state revenue from business is now considering the best ways to spend all the windfall from oil. Just before Russia invaded Ukraine and sent oil prices surging, Alaska's Department of Revenue started developing a monthly revenue outlook for the current and next fiscal years, to ensure that policymakers have the most accurate and up-to-date information when making decisions that impact the fiscal condition of the state.
As of mid-February, oil prices were exceeding the state's own estimates for revenue made in the autumn of 2021 by around $10 per barrel.
At that time, however, oil prices were still in the mid-$80s to $90 a barrel. A month and a half later, crude is well above $100 per barrel, with spikes to $120 and even $130 on some days.
The soaring oil prices are a boon to the state of Alaska, which relies very much on oil revenues for its budget needs. The price of the Alaska North Slope (ANS) crude spiked from $90.56 at the beginning of February to $114.93 a barrel as of March 24.
The windfall for Alaska's coffers has created a debate in the state over how best to spend the unexpected surplus revenue, considering the runaway inflation eating into household income and the highly unpredictable nature of oil revenues, which Alaska saw firsthand just two years ago when crude prices plummeted at the onset of the pandemic.
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Alaska's Governor Mike Dunleavy wants as much as possible of the huge oil revenues these days to go to rainy-day savings, to insulate the state budget from future oil price slumps as much as possible. Some Democrats in the Alaska legislature, however, seek to pre-fund school budgets to lock in funding while oil revenues are soaring.
Earlier this month, Governor Dunleavy said that he wants to prioritize the replenishment of the Permanent Fund Dividend (PFD) and provide immediate relief to Alaskans who are facing the highest inflation in 40 years and high fuel costs.
According to the Alaska Department of Revenue's Spring 2022 Revenue Forecast, unexpected oil revenue to the state has created a projected $3.6 billion increase in the revenue forecast over this year and the next.
"Rising oil prices are benefiting government finances and hurting Alaskans," Governor Dunleavy said in the middle of March.
"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. We must get funds into the hands of Alaskans now when the bills are due, not in a month's time," he added.
Alaska sends a check to every resident from the fund's revenue. The checks that went out last year were $1,114 each.
Deputy Commissioner of Revenue Brian Fechter said: "Due to current market conditions, we are presented with a tremendous opportunity to use this additional revenue to provide relief to Alaskans currently grappling with high inflation all while putting billions into savings to deal with future price volatility."
"Under the 10-year outlook, we can have surpluses while paying the PFD," Governor Dunleavy said. "We can also rebuild our savings with these surpluses in the range of $11 billion over ten years, based on a conservative forecast of $70 plus per barrel to 2031."
Commenting on the unexpected bonanza to Alaska's finances, Governor Dunleavy told The Wall Street Journal in an interview:
"The more money you put in the hands of people, the better they would spend it than the state would."
State Rep. Neal Foster, a Democrat, told the Journal that the oil revenue bonanza should be used to fund education in the state for the next school year, but Governor Dunleavy disagrees.
"If you start going down that road, you could future fund everything," Dunleavy told the WSJ.
Alaska's governor prefers to provide immediate relief to households and to future-proof the state's fund in the face of volatile oil prices and high uncertainty over their future course.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More