Democrats Question New Revenue Projections
Enormous implications mean new assumptions need more scrutiny
JUNEAU – Today, House Democrats raised concerns about the methodology and timing of the Parnell Administration’s new revenue projection model and asked Department of Revenue Commissioner Bryan Butcher to release to the public more details about its latest income projections. House Democratic Leader Beth Kerttula (D-Juneau) met with Commissioner Butcher and his staff this week to discuss the new report, but she was not satisfied with the explanations she received.
“Their new ways of running the numbers take Alaska from a surplus to a $400 million deficit for this year,” said Kerttula. “Alaskans need to know how and why the administration is coming to those conclusions. We need accurate numbers to build our budget for the future. When it comes to oil, this administration has earned a reputation of making unsubstantiated claims. Alaskans shouldn’t take these new numbers as gospel.”
“The governor and commissioner should have a thorough and public discussion with the Legislature about these new assumptions,” Kerttula said. “If they intend to propose significant policy changes based on the numbers, we need to know their formula is realistic and reliable.” said Kerttula.
The new projections add significantly to the estimates of what it costs to produce a barrel of oil. Because oil companies can deduct costs and investments in Alaska under the current tax structure, increasing the assumed production costs by almost 20% over last year accounts for over one billion of the roughly $1.6 billion decline in projected revenues for this year and next.
“We’re still waiting for the department [of Revenue] to complete audits from the last five years to see what the real costs are, but their cost projections have gone up over 50% just in the last three years with no explanation,” Representative David Guttenberg (D-Fairbanks) said. “Alaskans deserve a clear and accurate accounting of how their oil resources benefit the state, but the administration’s latest scheme doesn’t inspire confidence in their ability to track and manage our finances for the greatest public good.”
While the new production cost assumptions cause short-term deficits, the department also made questionable assumptions in its long-term projections. Historically, the department based future oil development projections on engineering estimates for the timing and volume of future oil development projects. Because some projects take longer to begin production or generate less oil than expected, analysts have long recognized a multi-year trend of overstating the projections. To compensate for this problem, the new projections assume a set proportion of the upcoming projects will not happen, leading to significant reductions in the projected revenue over the next decade.
“I agree with the goal of getting accurate numbers, but these new assumptions need closer scrutiny,” Kerttula said. “They don’t even mention shale oil even though there are companies up there right now, drilling wells to tap into what they say could be an even bigger shale deposit than the Bakken in North Dakota. Until the Legislature has the opportunity to carefully review these assumptions, Alaskans cannot know what to expect for the coming year.”