State to end year with surplus, but deficits returning

Posted: Thursday, April 12, 2001

JUNEAU (AP) -- The state will do a little bit better than break even this fiscal year.

The Department of Revenue is projecting a surplus of about $1.5 million. That's more than $100 million less than the department had predicted in December, and budget deficits are expected to return next year, Deputy Revenue Commissioner Larry Persily said Wednesday.

The department's spring forecast predicts higher than average oil prices of $27.61 a barrel for the fiscal year that ends June 30. Those prices, which are about $10 above the historical average, should bring the state its second budget surplus since 1993, Persily said.

The surplus is not as large as the $116.5 million extra the department had predicted in December when it was projecting oil prices of $30.17 a barrel.

''Oil prices are still good and they're better than the historical average, but they're certainly not as good as they were in December when we put out our fall forecast,'' Persily said.

Next year oil prices, which make up about 80 percent of the state's general fund budget, are expected to be lower -- $22.35 a barrel.

That would result in a deficit of about $622 million for the fiscal year that starts July 1, which will require the state to draw from the Constitutional Budget Reserve, a state savings account. That draw on the reserve account is based on a $2.4 billion general fund budget, Persily said.

At current projections the Constitutional Budget Reserve is expected to run out in July 2005, instead of the December 2005 date the department projected in December.

Persily said oil prices are not expected to stay high because most experts don't believe the Organization of Petroleum Exporting Countries will maintain the discipline to keep production low.

''There will be some cheating,'' Persily said. That combined with a slowing economy in the United States and some other countries leads to predictions of falling prices.

However, oil production is Alaska is expected to rise, Persily said. Average daily production between 2002 and 2006 is projected to be 7 percent higher than this year, because of new fields, such as Alpine, coming on line.

While oil revenue makes up the bulk of the state's general fund budget, investments and federal funding feed a significant part of the total state budget, which includes spending on Permanent Fund dividends.

Because the Permanent Fund has about half its money in stocks, it's suffered during the stock market dive of recent months, Persily said.

The market value of the Permanent Fund earnings reserve account dropped more than $2 billion this fiscal year as a result of investment losses and payment of dividends, Persily said.

Still, there is enough money in the earnings reserve to pay dividends and inflation proof the fund, he said.

Because bonds are performing well, the Constitutional Budget Reserve and the general fund, which are 100 percent invested in bonds or cash, have had better than average years, Persily said. The CBR is expected to earn a 10.3 percent return this year, and the general fund an 8.7 percent return.

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