April 16, 2002
Tuesday - 12:05 am

The Department of Revenue on Monday released its Spring 2002 Revenue Forecast, predicting Alaska North Slope oil will average $20.50 a barrel in Fiscal 2003 and $19.50 a barrel in Fiscal 2004. At those prices, and with an estimated state general fund budget the next two years of a steady $2.523 billion, the department projects the state will draw $963.4 million and $1.013 billion from the Constitutional Budget Reserve Fund in Fiscal Years 2003 and 2004.

"At those projections, the Budget Reserve will run out of money in October 2004," said Revenue Commissioner Wilson Condon.

The department's oil price forecast for Fiscal 2003, which starts July 1, is about $1.70 per barrel higher than it had projected in its Fall 2001 Revenue Forecast.

"Although the higher oil prices have slightly reduced our withdrawal of funds from the Constitutional Budget Reserve Fund, it is not enough to give us much breathing room in dealing with Alaska's fiscal problem," Condon said. "The higher prices are certainly good news, but they reduce the total three-year draw from the Budget Reserve by only $143 million for Fiscal Years 2002-2004."

Acknowledging some Alaskans might argue that the department's oil price forecast is too low, Condon pointed to several factors he believes back up the department's estimate:

• The $26 price of two weeks ago was a temporary spike, with prices sliding back more than $3.50 a barrel since then.
• The $20.50 forecast for Fiscal 2003 is more than $3 above the average price for North Slope oil since 1986.
• The $20.50 estimate is not that far off from the low end of the price range where OPEC nations would like to see oil prices.

"The Department of Revenue shares the view that non-OPEC production will continue to grow, that OPEC will continue to have problems holding all of its member nations to their production quotas, and that world oil prices will gradually revert back toward a more moderate price range," Condon said.

The Spring 2002 Revenue Sources book offers the following forecasts:

• Alaska North Slope oil will average $21.50 per barrel for Fiscal 2002, ending June 30. It had averaged $21.28 through Friday.
• The state will draw an estimated $826.7 million from the Budget Reserve for Fiscal 2002.
• If oil were to stay at $22 a barrel for the next three years, the Budget Reserve would gain five months of life but would still run out of money in March 2005.
• If North Slope oil prices dropped to $17.50 and then held steady at that historical average, the Constitutional Budget Reserve Fund would run out of money in July 2004.

"The hard truth is that as we continue to draw down our reserves to pay for public services, the end date of the fund just doesn't move that much with price," Condon said.

Source of News Release:

Office of the Governor
Web Site

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