Alaskans who want a larger Permanent Fund dividend, more state funding for K-12 education and the university, more money for child care services, highway maintenance or harbor improvements, more state aid for water and sewer projects, the state ferries or mental health services, or additional tax incentives to encourage business investment have a limited number of choices.
They can cut from one area to divert money somewhere else.
They can take more money out of the Permanent Fund, spending today but having a poorer tomorrow when the available funds are no longer available.
They can hope that the federal government increases its grants to the state, reversing the rapid decline under the Trump administration.
They can pay taxes.
Or, Alaskans could do as we have done for decades: Look to higher oil prices to float our boats.
North Slope crude oil prices closed May 15 at just under $68 a barrel. That’s down from just over $80 on Jan. 15 (ouch), down from almost $85 a year before that (a more painful ouch), and seriously down from $120 a barrel in March 2022, when Russia’s invasion of Ukraine inflated world oil prices.
The difference to the Alaska treasury between oil at $60 for the next fiscal year versus $70 is about $350 million in additional tax and royalty revenue. Oil at $80 for an entire year brings in $750 million more than oil at $60. And at $90, it’s $1.2 billion. It’s big money, and big money can solve the state’s big list of wants — without the trouble of tangling over taxes.
As crude as it sounds, if Alaskans really want the good times of the free ride to continue, they need to wish for bad times for the rest of the world. Nothing drives up oil prices like war or geopolitical tensions to constrain oil supplies.
The possibilities are sadly endless: Heavier attacks on shipping in the Red Sea, halting oil tanker traffic out of the Middle East; anything that drives up political tensions in the Mideast; Houthi attacks on oil production in Saudi Arabia; continued fighting between factions in Libya; or failure of U.S. negotiations with Iran and Venezuela, further limiting their oil exports.
On the home front, it’s not war or blockades that present a risk to oil prices, it’s pipelines and offshore production platforms. A break, a blowout, a major spill all can restrict supply, driving up prices. Or devastating hurricanes could shut down Gulf of Mexico production, causing the market to worry about supply. Worry comes with a price tag.
Of course, it could go the other way. Peace in the Middle East, negotiated deals with Iran and Venezuela, no more attacks in the Red Sea, and Russia withdraws from Ukraine and reenters world markets with its oil and gas.
Truth is, there’s really nothing Alaska can do to affect oil prices. And looking at the list of bad things that would have to happen to boost prices and fill the state treasury, we would be better off to just pay some taxes and think harder about the dividend and what’s important to Alaskans in the state budget.
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