Juneau, Alaska

(907) 699-6788 ed.king@kingecon.com

Alaska by the Numbers – FY20 Totals

Fiscal year 2020 came to an end on June 30th, 2020. Most of the official data for the year are now available. Here is a brief wrap up of how the year went.

After 9 months of gains, Alaska ended the year down 40,000 jobs

Alaska’s economy was up 1,700 jobs during the first three quarters of FY20, doing slightly better than we expected (and much better than ISER predicted). Of course, the unexpected and unprecedented pandemic response that shut down our economy undermined that job growth as the year ended.

In the last quarter of FY20, Alaska was down about 40,000 jobs from where it should be. Those job losses occurred throughout the economy, but were heaviest in the tourism, food service, and retail sectors. All told, Alaska averaged 319,883 jobs during the fiscal year. That compares to 328,700 jobs during the previous fiscal year.

Those job losses translated directly to unemployment, but not one-for-one. According to the technical definition of an unemployed person, Alaska saw an increase of about 22,000 people during the last quarter. Because of changes to the unemployment insurance program, the number of claimant far exceeded the number of unemployed Alaskans.

Alaska’s unemployment rate now stands at a record high.

Oil prices averaged $52.12 in FY20

After spending the first 8 months of the year hovering right around $65 per barrel, the bottom fell out of the market in February. The price of a barrel of oil hit a record low on April 20th, reaching a negative value. The average price for April ended up at just $16.55 (a 20-year low). By June, oil prices had recovered to $41.78 and have stayed there through July.

North Slope production averaged 481,856 barrels per day

According to AOGCC filings, the North Slope saw a total of 176.4 million barrel of oil production in FY20. That compares to 184.4 million barrels in FY19 (a 4.3% decline). Of the 8 million fewer barrels, nearly 6 million were the result of voluntary curtailments in May and June. If not for the pandemic caused disruptions, FY20 was on pace for a 1.5% decline.

Note that the TAPS throughput number was 472,660 barrels per day. The production that doesn’t enter the pipeline is used for enhanced oil recovery (EOR) and North Slope refining. An increase in EOR activity during FY20 creates an artificially higher decline rate of 5% when looking at TAPS throughput rather than total production.

Oil companies paid about $1.7 billion in taxes and royalties, kept $1 billion in net cash flow

During FY20, oil companies paid about $900 million in royalties to the State of Alaska for its ownership rights. The State collected another $300 million in taxes on oil company revenues. On top of that, oil companies paid over $500 million in property taxes to state and local governments during the year.

Taking the total production of 176.4 million barrels times the average price of $52.12 yields a total gross revenue of $9.2 billion of total value. Subtracting the estimated $6.5 billion the oil companies paid to employees, contractors, and Alaskan businesses – and the $1.7 billion they paid to state and local government – and that leaves a net cash flow of about $1 billion to pay federal taxes and provide investors with a return on their capital.

In other words, if we looked at oil taxes the same way we treat other businesses, they paid an effective tax rate of around 63% in FY20.

Permanent Fund earnings bounced back to a gain on the year

The stock market got crushed during the pandemic, leading to a loss of $6.4 billion in the Permanent Fund during the first three months of 2020. Fortunately, the markets rebounded as the economy opened back up. By May, the Permanent Fund had recovered all of those losses. Although the final numbers for June aren’t available quite yet, our preliminary estimate is that we earned a little over $1 billion on the year. That works out to a return of just over 2%.

The end of the fiscal year also triggered a transfer from the earning reserve to the principal account. As things stand today (August 3rd), the fund holds $66.3 billion of assets — Of which $46.6 billion is in the principal account, nearly $6 billion sits on the books as unrealized gains, and almost $14 billion is still available for appropriation ($6 billion of which is already committed for FY21 and FY22).

Total State Spending

After all was said and done, Alaska appropriated a total of $5.5 billion from the general fund to operate the government during FY20. That compares to $5.4 billion spent in FY19 (an increase of $134 million, unless some of those FY20 funds lapsed).

You may recall that the governor vetoed the FY20 budget down to $4.9 billion a year ago. But, the legislature added all of those vetoes back into the budget by the end of the fiscal year. While some departments ended up below their FY19 spending levels, others saw offsetting increases. In the end, there were no net budget cuts in FY20.

That $5.5 billion of spending exceeded the revenues by nearly $3 billion. To cover this deficit, the legislature diverted over $2 billion from the Permanent Fund earnings reserve and withdrew about $1 billion out of the constitutional budget reserve (CBR). The remaining balance of the CBR is expected to run out during FY21.

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