By: James Brooks, Alaska Beacon
The U.S.-Israeli war against Iran has left oil markets more uncertain than they were during the Great Recession, a state expert told the Alaska Legislature on Monday.
In a pair of hearings, Alaska Department of Revenue economist Dan Stickel told state legislators that the volatility of global oil markets is the second-highest on record, leaving future forecasts particularly unreliable.
“The level of uncertainty around future prices in the oil markets now is higher than during the peaks of the Great Recession in 2008-2009 and it’s higher than the Russian invasion of Ukraine, and it’s higher than any of the COVID spikes other than the initial April 2020 spike,” he said during a Monday morning hearing of the Senate Finance Committee.
“The message here is to plan for the possibility that revenue doesn’t come in exactly at what we forecast for the next couple of years,” Stickel said.
Oil is the second-largest source of general-purpose revenue for the Alaska state budget, and Stickel’s testimony came days after the department released a new Alaska revenue forecast showing $545 million more in current-year revenue than projected in the fall. Most of that higher prediction is due to the price of oil.
That forecast has snarled relations in the Alaska House of Representatives, which has repeatedly postponed discussion of a bill that would fund a variety of amendments to the fiscal year 2026 budget passed by lawmakers and Gov. Mike Dunleavy last spring.
On Monday, after more than two hours of acrimonious debate, House legislators again declined to take up the bill.
Soon after the House adjourned its floor session, Stickel testified in front of the House Finance Committee, and told lawmakers that “the level of certainty that we will hit our exact forecast is low.”
As he spoke, on the other end of the Capitol’s fifth floor, the Senate Finance Committee was simultaneously hearing from Office of Management and Budget director Lacey Sanders, who said the governor’s office was requesting another $18 million in spending for the current fiscal year.
Altogether, the governor has requested almost $427 million in additions to the budget. Add in additional spending proposed by lawmakers, and there’s only about a $30 million difference between the new revenue forecast and the additions proposed by the governor and legislators.
At the latest forecast prices, said Rep. Calvin Schrage, I-Anchorage, a $2 change in the average price of a barrel of North Slope oil is worth $30 million.
He asked Stickel what the odds were that the forecast misses low by more than $2.
“Roughly a slightly less than 50% chance that we come in more than $2 below the forecast,” Stickel said, then alluded to the fact that there’s a similar chance of coming in above the forecast.
“The level of certainty that we will hit our exact forecast is low in either direction,” he said.
Currently, members of the House majority are advocating that legislators unlock the state’s principal savings account to provide surety for some of those budget additions.
Doing so would avoid problems if oil prices turn out to be lower than forecast.
But spending from the Constitutional Budget Reserve, the state’s principal savings account, requires 30 votes in the House and 15 votes in the Senate.
The House’s multipartisan coalition majority has 21 members, which means they need support from the all-Republican House minority caucus.
Members of that group have been arguing against unlocking the budget reserve right now, saying that the new forecast and the current balance of the state’s general-purpose accounts demonstrate it isn’t needed.
In addition, as currently written, the supplemental budget bill in the House would allow spending from savings regardless of the price of oil. That could allow the majority to dictate extra spending even if prices stay high.
The Senate has already approved spending from the Constitutional Budget Reserve, and on Monday morning, Sen. Bert Stedman, R-Sitka and co-chair of the Senate Finance Committee, said a draw from the reserve would act as a “safety net.”
Sen. Lyman Hoffman, D-Bethel, said senators don’t intend to spend dollars from savings unless it is needed.
“If they are not needed, they will stay in the CBR,” he said, adding that without permission to spend from savings, there’s a chance that lawmakers would need to return in August to fix budget problems in a special session.
