Dunleavy claims of imaginary windfall falter, as oil price guess proves wrong once more

A month ago the Dunleavy administration announced that state finances had taken a miraculous turn for the better.

“Recent oil price increases have significantly improved our current fiscal situation and I’m pleased to report that the outlook for Alaska’s budget is good,” Revenue Commissioner Lucinda Mahoney gushed on Oct. 29.

Miracle-worker Mahoney, a supporter of the Dunleavy reelection campaign, announced an updated oil price guess during the brief moment when oil was selling for more than $85 a barrel.

She guessed that prices would remain higher for the rest of this fiscal year, averaging $81.31 a barrel.

Mahoney said the new guess would bring in an extra $1.2 billion this fiscal year and $1 billion for the fiscal year that begins next July. She treated the $2.2 billion like real money, not imaginary cash.

“We are optimistic about the current oil price and production trends,” Mahoney said.

The October update prompted overblown headlines such as this one in the Anchorage Daily News: “As oil prices rise, Alaska predicts a billion-dollar windfall that could boost PFD payments.” And this one in the Fairbanks Daily News-Miner: “Higher oil prices will bring a windfall to Alaska, revenue officials say.”

Candidate Dunleavy seconded the oil price miracle, saying “there is no excuse not to provide a $2,350 PFD.” Dunleavy claimed the state “is now making hundreds of millions of dollars in additional oil production taxes,” also acting as if the $2.2 billion windfall was real.

Dunleavy has a history of treating oil price dreams—when they are on the upside—like money in the bank. He and his surrogates did this when he ran in 2018. He did it again this year.

The enormous windfall that Mahoney and Dunleavy claimed to have discovered on Oct. 28 no longer exists. Alaska news organizations haven’t corrected the record yet or mentioned the downward revision that is surely coming in light of world events.

The Legislature had a good excuse for taking the conservative approach on the dividend. Had the Legislature listened to Dunleavy and paid a bigger dividend, we would be facing a bigger deficit.

Oil is back down at $70-$72 a barrel and the state guess that oil will average $81.31 for this fiscal year is on the rocks. Oil prices rose a bit Friday, but the market is volatile, a reality that makes every guess suspect.

A $1 change in the price of oil over a year means about $80 million more or less in state income when oil is in the vicinity of $70 per barrel. The dream of a temporary surplus is just that.

The inflated revenue guess from Mahoney and Dunleavy in October was a political act, an attempt to gain leverage in the Legislature for a bigger dividend. A competent revenue commissioner and governor would have resisted the urge and waited until December to update the oil price guess book.

To be fair, Mahoney’s month-old guess could still turn out to be right, depending upon COVID, OPEC and other factors beyond the control of anyone in Alaska.

But guess what?

The last month has not done a thing to justify her claim or Dunleavy’s claim about the extra $2.2 billion that was supposed to materialize by the end of Fiscal Year 2023 and boost the Dunleavy campaign.

Oil prices are down more than 20 percent in the past month.

“A series of events over the past month have come together to reverse the enormous momentum that oil prices had built up over the year,” Barron’s reported Thursday.

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