Notes from the Alaska Fiscal Cliff: What the heck is going on with Permanent Fund earnings

Last Wednesday the Department of Revenue published a "Preliminary Fall 2017 Revenue Forecast," http://bit.ly/2z2Chbt  ("Forecast") in conjunction with the start of this year's fifth Special Legislative Session. 

The Forecast is a ten-year forward look at the state's revenue picture.

Most news outlets reporting on the Forecast focused on the increase in oil production -- and associated revenue -- levels reflected in the analysis.

But as we discussed briefly the day following the release during a stint as guest host on the Tom Anderson Show there appears to be a much more important change buried in the detail.  See "Why the Administration’s revised 2017 Revenue Forecast calls into question the need for PFD cuts (or any other so-called “new revenue”), http://bit.ly/2iJ0yNW.

The change is in the level of annual projected earnings from the Permanent Fund. 

While the Forecast projects a small net increase of $38 million (or 3%) in unrestricted general fund ("UGF") FY 2018 oil revenues from the earlier Spring forecast, http://bit.ly/2zPvlM4, it projects a whopping $1.1 billion (or 33%) increase in realized Permanent Fund earnings from the earlier Spring book.

To be clear, that's not a year on year increase. That's an increase merely between what was projected for FY 2018 for that category of revenue in the Spring book and is now included in the Preliminary Fall Forecast.

As we said during our Tom Anderson Show segment and later when we posted the podcast, we believe that update is a potential game changer in the way that the Administration and Legislature should be looking at the need for any new revenue sources during the current (FY 2018) year.

Moreover, we believe that potential game changer applies to future years as well.  

Over the last couple of days we have had the opportunity to take a deeper dive into the Forecast, and to compare it with both the earlier Spring book and previous Permanent Fund Corporation projections.  The results are in the chart below.  

It is clear that something significant changed between the forecast published by the Permanent Fund Corporation for August of this year and that published for September.  We have circled the numbers reported respectively in the earlier Fall 2016, Spring 2017 and most recent Preliminary Fall 2017 Forecast below.

And whatever it is that has caused the change in outlook has changed the Corporation's -- and with that, the Administration's -- outlook for earnings beyond FY 2018 as well.

Right click on chart to increase size in a separate tab.

The Permanent Fund is now projected not only to generate an additional $1.1 billion in earnings in the current fiscal year, but also a fairly consistent $500 million more in subsequent fiscal years over the levels supplied to the Legislature during the previous sessions this year.

Simply put, if the Permanent Fund is projected to generate those, significantly higher earnings levels both currently and going forward, we believe the already weak rationale for cutting the PFD both currently and going forward is substantially diminished further, if not eliminated entirely. 

We will have more to say about this in the coming week, including during our weekly segment on The Michael Dukes Show this coming Tuesday. 

For now, we just want those who think about these issues to start focusing on the level and potential significance of the changed projections.