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Alaska’s Economic and Alaska’s Economic and Revenue OutlookRevenue Outlook

Dan Stickel, EconomistDan Stickel, EconomistAlaska Dept of RevenueAlaska Dept of Revenue

Tacoma WA, May 2008Tacoma WA, May 2008

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2007: Decent growth; great for budget2007: Decent growth; great for budget

Population Growth: +0.9% Population Growth: +0.9% Employment Growth: +1.1%Employment Growth: +1.1%

Strength: Oil, mining, tourism, servicesStrength: Oil, mining, tourism, services Weakness: Construction, fisheries, Govt.Weakness: Construction, fisheries, Govt.

Unemployment Rate: -0.3% to 6.2%Unemployment Rate: -0.3% to 6.2% Per Capita Income Growth: +6%Per Capita Income Growth: +6% Housing: Sales -10%, Avg Price +2%Housing: Sales -10%, Avg Price +2% State Budget: Higher oil prices + Higher State Budget: Higher oil prices + Higher

oil tax rate = Really Big Surplusoil tax rate = Really Big Surplus

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Total employment growth: Total employment growth: “Slow & Steady”“Slow & Steady”

Percentage change in employment from prior year Source: Alaska & US Departments of LaborPercentage change in employment from prior year Source: Alaska & US Departments of Labor

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008(F)

2009(F)

2010(F)

Alaska

U.S.

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Construction

Seafood Process

Local Govt

Federal Govt

Other Manufact

Information

Financial

State Govt

Retail

Other Services

Transport&Utilities

Healthcare

Wholesale

Educ Services

Leisure/Hospitality

Prof&Bus Services

Other mining

Oil&Gas Extract

-5% 0% 5% 10% 15%

Employment growth highlights: 2007Employment growth highlights: 2007

Total Employment Growth: 1.1%Total Employment Growth: 1.1%

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Construction

Financial

Other Manufact

Information

Educ Services

Federal Govt

Local Govt

State Govt

Transport&Utilities

Prof&Bus Services

Other Services

Seafood Process

Retail

Healthcare

Wholesale

Oil&Gas Extract

Leisure/Hospitality

Other mining

-5% 0% 5% 10% 15%

Employment growth forecasts: 2008Employment growth forecasts: 2008

Total Forecast Employment Growth: 0.6%Total Forecast Employment Growth: 0.6%

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Population growth Population growth

Alaska population estimate: 676,987 as of July 1, 2007Alaska population estimate: 676,987 as of July 1, 2007

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

Alaska

US

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Unemployment ticks upward… Unemployment ticks upward…

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… … With huge regional differencesWith huge regional differences

March 2008 Unemployment by region, not seasonally adjusted. State avg 7.4%March 2008 Unemployment by region, not seasonally adjusted. State avg 7.4%

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Per capita real income growth Per capita real income growth

0%

1%

2%

3%

4%

5%

6%

7%

8%

2000 2001 2002 2003 2004 2005 2006 2007

Alaska

US

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Housing: Sales down, prices steadyHousing: Sales down, prices steady

5,000

7,500

10,000

12,500

15,000

$100,000

$150,000

$200,000

$250,000

$300,000

# of Loans [L]

Avg Price [R]

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Housing: Q4 down from year agoHousing: Q4 down from year ago

0

1000

2000

3000

4000

5000

$200,000

$220,000

$240,000

$260,000

$280,000

# of Loans [L]

Avg Price [R]

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Unrestricted revenue: 91% from oilUnrestricted revenue: 91% from oil

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

Un

restr

icte

d R

even

ue (

$ M

illio

ns)

.

Oil revenues

Non-oil revenue

History Forecast

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Oil prices are higher;Oil prices are higher;Production is in declineProduction is in decline

$-

$20

$40

$60

$80

$100

AN

S O

il P

rice

($

/ Bar

rel)

.

500

700

900

1,100

1,300

1,500

. AN

S O

il Pro

ductio

n -

(barrels p

er day x 1000)

Alaska Oil Price

Alaska Oil Production

History Forecast

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Three severance tax hikes boost Three severance tax hikes boost state revenue.state revenue.

Revenue From Oil & Gas Severance Tax.Revenue From Oil & Gas Severance Tax. Key tax changes:Key tax changes:

1) Administrative change to ELF tax (tax rate 15% of gross * ELF) 1) Administrative change to ELF tax (tax rate 15% of gross * ELF) 2) New PPT Severance tax, (tax rate 22.5% on net minus credits)2) New PPT Severance tax, (tax rate 22.5% on net minus credits)3) New ACES Severance tax, (tax rate 25% on net minus credits)3) New ACES Severance tax, (tax rate 25% on net minus credits)

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$ B

illi

on

s

. History Forecast

1

3

2

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A budget surplus, for nowA budget surplus, for now

History & Forecast General Purpose Unrestricted Revenue; Spending Estimates are Unofficial & for History & Forecast General Purpose Unrestricted Revenue; Spending Estimates are Unofficial & for Illustration Purposes Only.Illustration Purposes Only.

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$ B

illio

ns

.

General Fund Spending(Unofficial)

General Fund Revenue

History Forecast

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Alaska’s $40 billion “rainy day” fundAlaska’s $40 billion “rainy day” fund

Historical and Projected Alaska Permanent Fund Value at end of fiscal yearHistorical and Projected Alaska Permanent Fund Value at end of fiscal year

$23.9

$25.1

$26.5

$24.8

$23.5

$24.2

$27.4

$30.0

$32.9

$37.8

$40.2

$42.6

$45.1

$47.7

$50.5

$53.5

$-

$10

$20

$30

$40

$50

$60

1998 2000 2002 2004 2006 2008 2010 2012

$ B

illi

on

s .

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……And it pays dividends to each AlaskanAnd it pays dividends to each Alaskan

Historical and Projected Permanent Fund Dividend Payment, Per Eligible AlaskanHistorical and Projected Permanent Fund Dividend Payment, Per Eligible Alaskan

$1,5

41

$1,7

70

$1,9

64

$1,8

50

$1,5

41 $1,1

08

$920

$846

$1,1

07

$1,6

54

$2,0

48

$2,2

87

$2,4

57

$2,4

29

$2,5

60

$2,7

49

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

1998 2000 2002 2004 2006 2008 2010 2012

Per-

pers

on

div

iden

d .

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On the horizon: On the horizon: A gas pipelineA gas pipeline

Two Proposals:Two Proposals:

TransCanada proposalTransCanada proposal Selected Under Gov Selected Under Gov

Palin’s AGIA initiativePalin’s AGIA initiative

Conoco/BP proposal Conoco/BP proposal Code name DenaliCode name Denali

Pipe to Alberta/Chicago, Pipe to Alberta/Chicago, Cost $20-40 billion +Cost $20-40 billion +

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On the horizon: A Mining boomOn the horizon: A Mining boom

$675mm E&D in $675mm E&D in 2006, likely higher 2006, likely higher in 2007.in 2007.

Pebble: world’s Pebble: world’s largest copper minelargest copper mine

Donlin Creek: will Donlin Creek: will double Alaska gold double Alaska gold productionproduction

Dozens of smaller Dozens of smaller prospectsprospects

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Outlook: Short termOutlook: Short term

Good for businessGood for business $2,000 PFD checks $2,000 PFD checks High commodity prices (Good for Alaska)High commodity prices (Good for Alaska)

Great for state governmentGreat for state government Oil-induced revenue surplusOil-induced revenue surplus

Uncertain for individualsUncertain for individuals Questions about Housing & InflationQuestions about Housing & Inflation Two-edged sword of commodity pricesTwo-edged sword of commodity prices $2,000 PFD checks, strong business & $2,000 PFD checks, strong business &

governmentgovernment

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Outlook: Longer termOutlook: Longer term

Oil prices level around $80/bblOil prices level around $80/bbl Continued declines in oil production Continued declines in oil production

mean state budget deficits returnmean state budget deficits return Potential economic boom from Potential economic boom from

megaprojects:megaprojects: Natural Gas pipelineNatural Gas pipeline Pebble / Donlin Creek minesPebble / Donlin Creek mines

Risk: Significantly lower prices for Risk: Significantly lower prices for oil, gas, mineralsoil, gas, minerals

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For more information For more information

Dan StickelDan Stickel

Alaska Department of RevenueAlaska Department of Revenue

daniel.stickel@alaska.govdaniel.stickel@alaska.gov

www.tax.alaska.govwww.tax.alaska.gov