March 23, 2020
Monday PM

The State of Alaska has been operating at a deficit. This is nothing new and has been the primary challenge for the Legislature over the past five years. However, this year, some new wrenches were thrown into the equation: decreasing oil prices and the stock market. Unfortunately, the State of Alaska revenue comes almost solely from those two sources.

For decades, oil covered over 80% of our budget until oil prices and production decreased and we began relying on savings and the Percent of Market Value (POMV) draw. Now, oil accounts for approximately 20% of our revenue. Despite that decrease, oil price and production are still vitally important to our revenue. Our original Fiscal Year 2020 Revenue Forecast assumed $63 per barrel for oil, but that is no longer the case. We have been hovering under $30 per barrel for multiple days, which impacts our current budget (FY2020). We are now assuming a reduction of about $300 million for FY20. If prices stay low, which we expect, it will also impact the budget we are currently working on for the upcoming Fiscal Year 2021. The original forecast for FY21 was $59 per barrel, but we now assume $40 per barrel, which is a decrease in revenue of about $550 million. Those are optimistic numbers, and I expect our loss of revenue to actually be much more.

With the deep downturn of the stock market, our Permanent Fund has taken a hit. In January 2020, the corpus of the fund and the Earnings Reserve Account together totaled almost $67 billion. As of March 20, the total is slightly under $57 billion – a loss of approximately $10 billion to date. The Earnings Reserve Account by itself is $16.1 billion, but much of those funds are already committed; $7.9 billion is already committed for the FY21 POMV draw, FY20 special appropriation of $4 billion, and the inflation proofing. Not including unrealized gains, we have a little under $8 billion in our Earnings Reserve Account. From that amount, we will have to pay for future services, dividends, inflation proofing, and hopefully, still have some savings.
The dividend is paid from the Earnings Reserve Account. As you’ve read, we do not have the money available to pay a large dividend payout. I understand at this time, a dividend to individuals and families is more important than ever. The amount has not yet been settled upon yet, but I expect the Legislature to vote on the budget, including dividends, this week.

Overall, our current legislative priorities are to pass a budget and Covid-19 related legislation as quickly as possible. If you have any questions or concerns, please email me at Rep.Dan.Ortiz@AKLeg.gov or call my office at 907-465-3824.

Respectfully,

Rep. Dan Ortiz
Ketchikan, Alaska

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Received March 23, 2020 - Published March 23, 2020

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