Legislators started the session in January amid a shortage of revenues and debate whether the state could even afford a dividend this fall unless it exceeded its annual limited draw from the Permanent Fund. Significantly higher oil prices and more than $1 billion from this month's federal pandemic aid package may fix both problems, though only temporarily.
The Alaska Department of Revenue told legislators last week that higher oil prices could produce an additional $790 million in revenues this year and next fiscal year, close to a 10% boost in total state general fund revenues.
At the same time, lawmakers have learned that Alaska's share of the American Rescue Plan Act, signed by President Joe Biden two weeks ago, could send about $1.2 billion to the state, plus $200 million more for housing aid for renters and homeowners, almost $360 million for education and about $240 million directly to local communities.
"The sense of urgency has been reduced," said Fairbanks Rep. Bart LeBon, in his third year as a member of the House Finance Committee.
The federal aid does not all have to be spent this year, and the state is waiting for more details on the spending rules, but it is one-time help, not a recurring federal funding program.
Lawmakers - and the public - have talked increasingly of the need for either a state sales tax or state income tax to help cover the cost of services as North Slope oil production continues its three-decade decline. But the only tax bill to move between committees in the first two months of this session is a measure to increase the state's eight-cent motor fuel tax, which has not changed since 1970.
The state has run a deficit about half of the past 30 years, drawing on savings to balance the budget. After running through billions of dollars of savings, lawmakers and governors have reduced the size of the annual Permanent Fund dividend to Alaskan every year since 2016 and drawn on Permanent Fund earnings to help pay for public services the past three years.
Work toward a long-term, sustainable fiscal plan for the state has been hung up on the divided politics of taxes, government spending, and use of Permanent Fund earnings for dividends and public services.
"I think anything that takes away the sense of urgency makes it tougher to make the momentous decisions," Juneau Sen. Jesse Kiehl said of this spring's higher oil revenues and additional federal dollars.
The Department of Revenue in December estimated North Slope crude would sell at an average $48 a barrel in the fiscal year that starts July 1. The department on March 16 updated its price forecast to $61. As of Tuesday, Alaska oil was sellingright at $61, as global markets anticipate a strong demand recovery for crude as the world pulls out of the pandemic later this year.
Higher oil prices "give us a little breathing room," said Fairbanks Sen. Click Bishop, co-chair of the Senate Finance Committee. "Let's be honest, we're not out of the woods."
"Any good news is welcome," Bishop said of the additional oil revenues and federal money. "We've just got our nose above water."
Last year, the state received $1.25 billion in federal CARES Act money. This year, under the American Rescue Plan Act, the state general fund is in line to receive an estimated $1.2 million. A big difference between the two programs, however, is that Alaska cities and boroughs did not receive any direct funding under the CARES Act, and the state shared almost half of its federal aid with municipalities last year.
This year, Alaska communities are set to receive somewhere between $230 million and $250 million directly through the Rescue Plan Act, though several cities and boroughs already have said it is not enough to cover their lost sales tax revenues and they are looking to the state to share some of its money.
Communities and businesses hit hardest by the loss of tourism last year and again this summer may need more help, said Anchorage Sen. Natasha von Imhof, a member of the Finance Committee.
Wrangell will receive about $500,000 as its share of the direct federal aid, its Washington, D.C., lobbyist told the borough assembly earlier this month.
The CARES Act money arrived last year after lawmakers had ended their session, leaving it to the governor to make spending decisions, with minimal legislative control. This year, many in the House and Senate are looking to stay in session long enough to receive the federal rules and make the spending decisions on the Rescue Plan funding.
That could mean the legislative session extends into mid-May, at least, though anything past that would require lawmakers to extend or the governor to call a special session.
The federal money could be used for construction and maintenance projects, or to help cover the operating budget for public services, alleviating any need to dig deeper into Permanent Fund earnings to balance the budget.
Lawmakers and the governor still will need to debate the size of this year's Permanent Fund dividend, however, but the improved revenue picture at least has money on the table to fight over.
One state revenue loss in particular looks to be a natural fit for the latest federal pandemic aid. Under a provision of last year's CARES Act, corporations were allowed to take their heavy losses in 2020 and apply them to profits earned in prior years, applying for immediate tax refunds for those years rather than wait to apply the losses to reduce future tax payments.
That provision will affect Alaska tax revenues because the state, by statute, accepts changes in the federal tax code. The Alaska Department of Revenue estimates the corporate tax refunds could cost the state treasury $162 million this year and next, most of it going to non-oil corporations hurt by the pandemic's hit to the economy.
While designating the federal aid to replace that $162 million could be an appropriate use of the money, von Imhof said the Legislature should take care not just to look at short-term budget gaps but also use some of the federal aid for long-term benefits, such as addressing the shortage of treatment services for alcohol and drug abusers.
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