The state of Alaska will have less money to spend than expected next year due to a revised estimate of North Slope oil production and fewer tax dollars coming in, state analysts said.
The Department of Revenue spring forecast, which lawmakers use to craft the state budget, predicted Thursday that the state will bring in $364 million less than expected over the next fiscal year, which starts July 1.
The larger-than-expected decline would slash next year's projected budget surplus, which was pegged at $500 million. It now looks to be closer to $200 million and that's only because the report Thursday says the state will bring in $68 million more than expected this fiscal year, which ends June 30. That surplus could be carried over to help offset the projected decline.
Lawmakers warn that trend also could mean the state will be spending more than it earns by fiscal year 2009 as oil production on the North Slope continues a steady decline.
"I thought the oil fairy would save us again in '09 but what we are finding is that it isn't," said Sen. Gary Wilken, R-Fairbanks. "And as we move up and down we are going to find we are in a deficit situation."
Revenue Commissioner Pat Galvin said estimated revenues from oil were revised in three ways since a forecast last fall:
-- State economists opted for a more conservative estimate of oil production because of concerns arising over the Prudhoe Bay shutdown last fall due to leaks from corroded pipes.
"The likelihood of things occurring is greater given that we have a 30-year-old field," said chief economist Michael Williams. Williams also said the revised production estimate reflects problems in counting the barrels of oil from various fields after oil was rerouted to other lines in the wake of the spill.
-- Expected revenues from the new oil tax were lowered when the petroleum production tax payments, which brought in an extra $1 billion over the old tax plan, came in earlier this month at about $90 million less than expected.
The state underestimated operating costs that oil companies would be deducting by about 50 percent while overestimating their capital costs by about 15 percent.
-- State officials also underestimated the amount of credits oil companies would claim under the next tax scheme this year. They now expect companies to claim those credits next year.
The Revenue Department predicts the general fund will have earned a record $4.98 billion by June 30, the end of fiscal year 2007.
But it's not so rosy for next year, when earnings will only bring in $3.5 billion.
Analysts attribute the drop to declining oil prices and the rising cost of shipping oil to the West Coast. Royalties and taxes from North Slope crude make up about 85 percent of the state's revenues.
Meanwhile, the state's long-term forecast continues to look grim.
Though oil production this year is projected to be higher than last year, barring another major disruption, it is on the decline overall.
Revenue officials forecast that production will sink to 682,000 barrels a day by the year 2016 as compared to 764,000 barrels a day next year. That's compared to a peak of 2 million barrels a day in 1988.
Oil prices are also projected to fall over the long term, though prices have been notoriously volatile in recent years.
Gov. Sarah Palin's budget director, Karen Rehfeld, said the state's long-term prospects point to the need to bring Alaska's natural gas to market.
"We struggle because we have so many things that need to get done in this state and there's a lot of pressure on those revenues," Rehfeld said. "And until we get a long-term stable funding source, we are going to have some challenges."
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