Dunleavy's fiscal fantasy collapses on faulty oil price guess, making the case for taxes

Gov. Mike Dunleavy’s statement that “we were told that we were going to have $75 a barrel oil” appears to be something he was “told” after the election.

What seems clear in retrospect is that candidate Dunleavy assumed that oil would be $75 a barrel in the next fiscal year and he based the entire fiscal fantasy of his campaign on that assumption.

A price of $75 per barrel did sound reasonable to experts in September and October when Dunleavy was campaigning, but then oil prices quickly collapsed after President Trump granted exemptions to Iranian sanctions.

In Alaska we have an oil tax system that was not designed to produce a good return to the state with prices near these levels. That’s because there was little analysis during the SB 21 turmoil about what would happen with prices of $65 a barrel or $70 a barrel.

A $1 change in the price of oil for a year means about $80 million more or less in state income when oil is about $70 per barrel. Oil is now closer to $67 than $75.

Dunleavy press secretary Matt Shuckerow, who gets $115,000 a year to say his boss is doing a great job, recently complained to KTVA about the “wishful thinking” of the Walker administration with its prediction that oil would be $75 a barrel in 2020.

Dunleavy is trying to say that it’s all Bill Walker’s fault.

Public radio reporter Andrew Kitchenman, who is doing a good job covering the Legislature and governor, went into more detail on the “we were told that oil would be $75” angle than other reporters who got a chance to interview Dunleavy.

Dunleavy has claimed that he lacked “inside information” about the state budget when he made his campaign promises to not cut schools, the University of Alaska, the ferry system, etc. Kitchenman asked what kind of inside information?

“That we were told that we were going to have $75 a barrel oil. That certainly didn’t hold. So we’re at $64 a barrel oil,” Dunleavy said.

“I don’t know where the other administration came up with $75 a barrel oil, but it’s certainly been in the low $60s here for the past couple of months,” Dunleavy said.

There is a chronological problem with Dunleavy’s “we were told that we were going to have $75 a barrel oil” song and dance.

While no one ever told him that, the Walker administration did release a preliminary forecast in its final hours, based on the optimism of September and early October, that said oil prices would be $75 a barrel in 2020. That prediction was later revised $11 a barrel lower by the Department of Revenue.

Right or wrong, the $75 guess was released on Dec. 3, 2018, nearly a month after Dunleavy won the election.

In other words, campaign promises made many weeks or months earlier cannot be blamed on something that Dunleavy was “told” after the election.

During the campaign, when Dunleavy was promising no cuts to services, the state was still guessing that oil would be $64 a barrel in the next fiscal year. That is again the guess for 2020.

And because of the faulty oil tax structure in Alaska, a drop from $75 to $64 creates an enormous hole in the budget. We don’t need to be told what that says about Dunleavy’s budget planning.

The truth behind his fiscal fantasy would be something like: “I foolishly assumed that we were going to have $75 a barrel oil.”

That his “sustainable plan” didn’t even allow for an $11 decrease in the oil price proves that it wasn’t much of a plan and it wasn’t sustainable. Praying for higher oil prices does not a fiscal plan make.

To end the fantasy and make this real, Dunleavy has to talk taxes and recognize that Alaskans find it irresponsible for him to try to gut education, health care, the ferry system and a variety of other programs.


Dermot Cole5 Comments