Alaska’s persistent budget troubles: A warning for North Dakota
Hoping to permanently fix Alaska’s long-running budget shortfalls, Governor Mike Dunleavy has put forward a 10-year budget plan that, among other things, will
- Create a temporary, seasonal sales tax to sunset in 2034
- Cap spending growth at 1 percent per year beginning in 2028
- Ax Alaska’s corporate income tax, effective January 2031
- Raise “the minimum production tax floor from four to six percent for five years starting in January of 2027.”
Yet even with these measures, Alaska will operate on a deficit every year between 2026 and 2030. The state’s luck will reverse in 2031, but deficits are expected to reappear in 2035.
Signs indicate that the plan is unlikely to pass. Nevertheless, Alaska’s persistent fiscal troubles should serve as a warning to North Dakota about the dangers of relying on volatile oil and gas revenues.
How Alaska and North Dakota compare
According to the Bureau of Economic Analysis (BEA), the extractive industry accounted for 18 percent of North Dakota’s total private-sector output, or Gross Domestic Product (GDP), in 2023, compared to less than 1 percent in the median state. Only four other states — Wyoming, Alaska, West Virginia, and New Mexico — had a comparable share of extractive sector GDP.
Yet even among these 5 extractive-heavy states, North Dakota and Alaska are particularly reliant on oil and gas tax revenues — also known as severance taxes.
According to the U.S. Census Bureau, severance taxes accounted for more than 40 percent of state and local tax collections in North Dakota and Alaska in 2023. In Wyoming, where extractives comprised an even larger share of the state economy, severance taxes accounted for 24 percent of tax revenues. In West Virginia, the share was less than 8 percent.
Figure 1: Extractive Sector GDP vs. Severance Taxes as a Share of Total State and Local Tax Revenues, 2023
Adjusted for population, North Dakota collected $4,237 (in 2025 $) per capita in severance taxes in 2023. North Dakota outpaced Alaska, which collected $3,293 per resident, by 29 percent. Wyoming collected $2,066 per resident, less than half of North Dakota’s per capita levy.
Figure 2: Severance Tax Collections per Capita, 2023
Why reliance on oil and gas is risky
Due to falling oil and gas prices, Alaska has run deficits almost every year since 2012. The state has mainly fended off deficits by tapping into its savings. Yet even these transfers cannot keep the deficits at bay forever. Making the situation worse is the fact that oil and gas prices are highly volatile, making severance taxes an unpredictable source of revenue.
North Dakota’s severance tax collections, for instance, fell by 21 percent in 2019 after rising by the same level in 2018. Collections then fell 24 percent in 2021 but rose by 59 percent in 2022. According to calculations by the Pew Research Center, between 2009 and 2023, North Dakota had the second-most volatile tax system after Alaska. This is thanks to the state’s reliance on oil and gas tax revenues.
While not in a particularly precarious position, North Dakota spent more money than it collected in revenues in 2025. This was true even after including transfers from the Legacy Fund — the state’s permanent wealth fund.
Figure 3: Current Revenues (Including Transfers) vs. General Fund Spending, 2010-2025 (Current dollars)
Under the 2025-27 budget, general fund spending is estimated to reach $6.3 billion. This is a billion dollars higher than expected tax collections. While revenues exceed spending after accounting for the money left over from the previous biennium, this structural imbalance poses a risk of future shortfalls.
If nothing else, Alaska should be a lesson on the dangers of relying on oil and gas to fund ever-rising spending, a vulnerability that could intensify, particularly as welfare spending continues to grow and federal spending cuts hit.