JUNEAU — The Alaska Permanent Fund has surpassed the oil industry and all other taxes combined as the cornerstone of the state budget, according to an updated forecast from the Alaska Department of Revenue.
According to the figures released Friday and presented Monday to the Senate Finance Committee, the Permanent Fund will deliver $2.7 billion to the state treasury this fiscal year. The oil industry will pay $2.1 billion in taxes and royalties. The state will collect another $548 million in other revenue, according to the latest forecast.
This isn’t a short-term shift: Department of Revenue projections indicate the Permanent Fund’s investments will out-earn all other taxes and royalties each year through 2028, the end of the forecast period.
The shift had been expected after the Alaska Legislature passed legislation last year to make annual transfers from the Permanent Fund’s investment earnings to the state treasury, but it was expected to take place in the fiscal year that starts July 1, not now.
A slightly decreased oil-revenue forecast changed that expectation and in the process further diminished the narrow hope that a sudden surge in oil prices will eradicate Alaska’s lingering budget deficit.
“I wish I had some good bailout news for you this morning, but we didn’t see a lot of changes on the revenue side. It’s pretty flat, pretty predictable,” Department of Revenue Commissioner Bruce Tangeman told lawmakers.
The new revenue forecast expects North Slope oil to average $66 per barrel in the fiscal year that starts July 1; the previous forecast, released in the fall, had guessed $64 per barrel. Production is expected to fall, partially negating that increase.
In addition, oil companies are expected to increase their tax deductions with additional development work on the North Slope, Tangeman and economist Dan Stickel told lawmakers.
While state oil revenue is expected to drop through at least the mid 2020s, revenue from the Alaska Permanent Fund is expected to increase during that period. Under the system approved by lawmakers last year, the treasury each year receives 5.25 percent of an average five-year value of the fund. That percentage drops to 5 percent in 2021.
As long as the fund’s investments earn a higher rate of return than the withdrawals, the fund will continue to grow and so will transfers to the treasury.
In the current fiscal year, the transfer was $2.7 billion. In the fiscal year that starts July 1, the transfer will be $2.9 billion. That’s expected to rise to $3.1 billion in the fiscal year after that. Within 10 years, the transfer would be more than $3.6 billion per year.
Monday’s forecast applies only the state’s “unrestricted” revenue, not to federal money or fees that also appear on state balance sheets. The unrestricted section of the budget pays for such things as K-12 education and the Permanent Fund dividend.
This year, Gov. Mike Dunleavy has proposed significant cuts to state services in order to increase the amount of unrestricted spending on the Permanent Fund dividend while not raising taxes or spending from savings. The governor’s proposal would spend $1.9 billion on dividends, up from $1 billion in the budget approved last year.
Lawmakers thus far have been reluctant to accept that concept.