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Alaska’s Economic Uncertainty in the Wake of Trump’s Presidency

JUNEAU, Alaska — Following President Donald Trump‘s return to the White House, Alaska Governor Mike Dunleavy expressed hope, proclaiming the revival of energy policies as a boon for a state heavily reliant on oil revenues.

However, the first three months of Trump’s administration have been marked by challenges affecting Alaska’s federal workforce and the stability of federal funding that many Alaskans depend on.

Inconsistencies in Trump’s tariff policies and subsequent fluctuations in oil prices—reflecting a decrease attributed to various economic factors—have left Alaska’s lawmakers grappling with the implications for the state budget, which hinges on the often volatile oil market. With the legislative session concluding in mid-May, uncertainties loom as the end date approaches Trump’s recently announced suspension on higher tariffs set to expire.

This unpredictability has intensified existing debates on budget allocations, specifically regarding the distribution of oil-wealth dividends to residents versus funding crucial services like education. Tax hikes seem off the table for many legislators, raising concerns about the sustainability of financial reserves that have been drained to address chronic budget deficits for over a decade.

“We’re all in a pickle,” stated House Speaker Bryce Edgmon, who leads a coalition that includes Democrats and independents.

Alaska has a history of navigating the highs and lows of oil-dependent economics, with government spending expanding during periods of high prices and contracting when prices fall. Legislative spending decisions rely heavily on biannual revenue forecasts intertwined with oil price predictions.

Last year, oil prices on the North Slope averaged around $90 per barrel; as of late, these prices have declined to the low-to-mid-$70 range, with recent figures dropping as low as $65 before Trump announced a 90-day tariff moratorium.

According to estimates from the nonpartisan Legislative Finance Division, every dollar change in oil prices translates to an impact of approximately $35 to $40 million on state revenue. The March revenue forecasts adjusted expectations to $68 per barrel for the upcoming fiscal year, a decrease from earlier predictions.

Oil prices can be volatile, and OPEC+’s plans to increase market supply may add to this instability. Governor Dunleavy’s office highlighted that the administration is focusing on President Trump’s executive orders designed to enhance oil, gas, mining, and logging operations in Alaska, providing optimism for resource-based economic development.

Some local political figures have expressed hope that Trump’s tariff threats may incentivize nations like Japan, South Korea, and Taiwan to invest in a proposed liquefied natural gas project in Alaska, a plan that has faced numerous hurdles over the years due to cost, competition, and economic viability.

Alaska voters supported Trump in the previous election.

In addition to oil, Alaska also derives substantial revenue from its oil-wealth investment fund, from which earnings are disbursed to support state needs. Withdrawals from this fund are capped, and the distribution of dividends to residents has traditionally depended on these earnings. Since 2018, lawmakers have sought to allocate these earnings for both dividends and state services, igniting disputes over the appropriate balance.

Dunleavy’s proposed dividend of approximately $3,800 per resident would use nearly two-thirds of the planned yearly earnings withdrawal, putting the state at risk of a budget shortfall he suggested could be covered by significant savings. This approach follows an earlier dividend formula abandoned by Alaska legislators due to its unsustainability.

This proposal has drawn skepticism from legislative leaders, who are currently addressing calls for increased funding for K-12 education, which has suffered from inflation and rising costs for energy and healthcare. Advocates for education have highlighted maintenance issues across school facilities that have led to unsafe conditions for students.

Last year, the state distributed $1,702 in total payments, combining dividends and energy relief. Over the previous five years, these dividends have fluctuated, with amounts ranging from as low as $992 in 2020 to as high as $3,284 in another combined payment.

House Majority Leader Chuck Kopp indicated that it’s imprudent for politicians to advocate for a dividend as high as Dunleavy suggested.

“We cannot afford an unsustainable dividend, and that proposal misrepresents the fiscal reality we face,” he remarked. “The question we need to address is whether new revenue is required or if we need to reassess the dividend size while creating a clear prioritization of our state’s financial obligations.”

While some bipartisan senators have proposed revising oil tax structures to enhance revenue, overall enthusiasm for such measures has been tempered.

Source
abcnews.go.com