Gov. Mike Dunleavy’s amended budget unveiled Feb. 15 attempts to address crisis areas in state public services, with the additional spending driving the anticipated budget deficit past $400 million.
The proposed budget for the next fiscal year is updated from his initial proposed budget announced in December. At that time, Dunleavy’s largely flat spending proposal for services had a $322 million deficit. The largest single expense in the governor’s proposed budget is $2.5 billion for a Permanent Fund dividend at roughly $3,900 per person this year.
Dunleavy said Feb. 15 that to bridge the fiscal gap, the Legislature could draw from the Constitutional Budget Reserve — the state’s main savings account — which as of Jan. 31 had a balance of just under $1.07 billion.
The account had more than $10 billion in 2015, but it has been in steady decline as legislators and governors have withdrawn money over the years to pay dividends and maintain public services without raising new revenues.
The governor has said that his plans for a carbon credit and sequestration program on state lands could provide a new revenue stream of hundreds of millions of dollars a year, but he acknowledged that those proposals would take time to generate substantial dollars. The Alaska Legislature has said it will hire its own independent consultants to vet the governor’s proposals, with many lawmakers skeptical of the governor’s large numbers.
State revenues are largely driven by oil prices, and the Legislature convened in January amid historic oil price volatility. Alaska North Slope crude has dropped by more than a third since June last year and has hovered around $80 per barrel since the start of the year — well below December projections.
“We can’t afford a $2.5 billion dividend, that’s just a plain fact,” said Sitka Sen. Bert Stedman, who manages the operating budget in the Senate. He said he expected the deficit would balloon to over $500 million once other spending needs are identified.
Dunleavy’s proposed additions to the budget total $114 million to fill gaps and meet needs for the current fiscal year that ends June 30, and an additional $108 million in state dollars for the fiscal year starting July 1. The governor is requesting new appropriations to address multiple ongoing crises in Alaska:
• An extra $8.3 million for the Office of Public Advocacy and the Public Defender Agency. The funding would be partly used to address a public defender shortage, which the agency cited in early February while announcing that it would stop accepting new clients who face serious felony charges filed in the Nome and Bethel Superior Courts.
• $9 million added to the Division of Public Assistance, which is contending with significant backlogs processing applications for food stamps and Medicaid, leading to Alaskans waiting months for aid.
• $54 million — including $17 million in state funds — to move to a modern IT system at the Division of Public Assistance to process applications for aid programs. State officials have cited the current antiquated system as one of the causes of the ongoing backlogs.
Commissioner Heidi Hedberg said the state Department of Health, which oversees the public assistance division, has sought to hire 30 additional nonpermanent staff to address the food stamps and Medicaid backlog, and that “we’re getting really close to being full-staffed.” Staff at the department are currently working through the November applications for food aid, she said. Applicants have been waiting months for food stamps, far exceeding federal law.
One of the biggest outlays in Dunleavy’s amended budget in state dollars is for Medicaid. The end of the federal COVID-19 emergency means the federal government’s extra pandemic-era contributions to the health care program will wind down over 2023. An additional $24 million would be needed from the state treasury to make up for that shortfall.
In exchange for extra federal COVID-19 funding, states agreed in 2020 to keep Medicaid recipients enrolled in the program until the end of the public health emergency. A federal spending bill passed in December ended that moratorium, and normal Medicaid eligibility requirements will resume in April.
Starting April 1, the state will need to determine if all of the roughly 260,000 low-income Alaskans receiving Medicaid are still eligible to receive benefits, a process that will be phased in over a year. The food stamps backlog delayed an outreach effort about the looming Medicaid recertification process.
In infrastructure spending, the Dunleavy administration wants to use $125 million in federal highway dollars to replace Nome roads damaged by Typhoon Merbok. The administration is also proposing to spend $7 million to upgrade the Division of Elections’ voter registration IT system and election database.
The state’s fiscal situation is tighter than some legislators may think, Stedman said. That could pose challenges for those who were expecting higher revenue projections and grew used to over $1 billion in federal COVID-19 aid, which helped paper over some of the state’s fiscal challenges, he said.
“From what I understand, they’re running around the building like little piggies in the financial trough,” Stedman said about his colleagues.
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