Resource Revenues and Fiscal Sustainability: Lessons of the Alaska Disconnect

Abstract

In 1968, the Prudhoe Bay oil field was discovered on Alaska’s North Slope – the largest oil field ever discovered in North America. That discovery led to an economic and fiscal transformation of the young state of Alaska. A 1969 sale of Prudhoe Bay leases brought the state $900 million in one day ($4.9 billion in 2014 dollars) – six times the state’s budget that year of $115 million (Ragsdale, 2008). After the completion of the Trans-Alaska pipeline, oil began flowing from the North Slope – bringing the state very large annual oil revenues. Cumulatively, between 1978 and 2014 the state earned $111 billion in unrestricted general fund oil revenues ($164 billion expressed in 2014 dollars). 1, 2 (See Table 1.) It has not been a smooth ride. Annual state oil revenues have varied widely since North Slope production began, particularly because of changes in oil prices, but also because of changes in oil production, costs of production, and oil tax laws (Figure 1). Soaring oil revenues in the early 1980s were followed by 20 years of decline, including a very sharp drop in 1987 which contributed to a severe recession in Alaska. Rising prices brought soaring revenues again from 2005 to 2012 – followed by another very sharp drop since 2012, with drastically lower oil revenues projected for FY 2015 and FY 2016.