JUNEAU — Falling oil prices are projected to slice $925 million from state revenues this year and next, bolstering the argument of legislators who support a smaller Permanent Fund dividend this fall and the years beyond.
More immediately, lower oil prices have torn big holes in the state budget. The Department of Revenue on March 21 released new estimates showing a deficit of about $220 million in the fiscal year that ends June 30.
Legislators have agreed to use savings to fill this year’s deficit by spending from the state’s Constitutional Budget Reserve, they said March 21, but it’s not yet clear how they will address the deficit in the upcoming fiscal year. That deficit will depend in large part on the size of the dividend.
While the governor continues to support a $3,860 dividend, the House majority has signaled its support for a $2,700 PFD — either of which would overspend state revenues without large budget cuts or substantial and immediate new revenues.
The Senate majority has started discussing a $1,300 dividend for this fall and over the long-term, which would allow the state to also increase school funding without creating a deficit and further draining the state’s sole remaining savings account.
The Department of Revenue latest revenue projections estimate that the price of oil will average $73 per barrel for the 2023-24 fiscal year — about where prices started this week. Fears of a recession and weaker demand for oil, along with the latest banking crisis have driven down crude prices more than 40% from last summer.
In anticipation of a worsening revenue forecast, the House reduced the size of the dividend in its budget plan during a Finance Committee hearing March 20 to around $2,700 per Alaskan. The dividend would follow the 50-50 model — where 50% of the annual draw from the Permanent Fund would go to state services, and 50% would go to the dividend. But the House’s budget for the fiscal year that starts July 1 would still be in the red by more than $240 million.
The governor’s larger PFD would create almost a billion-dollar deficit.
Palmer Republican DeLena Johnson, who manages the operating budget in the House, said March 21 that there had not been a caucus discussion about the size of this year’s PFD, but she did not anticipate the Republican-led House would want to go lower than $2,700.
“It’s really this political football that gets kicked around back and forth,” said Fairbanks Republican Rep. Frank Tomaszewski, a Finance Committee member. “What I really want to see is a sound fiscal plan coming out of the Legislature.”
The House draft budget does not include any increase in state funding for K-12 schools, which has been discussed at around $200 million for next year, or any construction or renovation projects typically added to the budget each year by legislators.
Johnson said further budget actions will be forthcoming. The new smaller revenue forecast, she said, “is the elephant in the room.”
Senate Finance Committee discussion turned March 21 to rewriting the dividend formula in state statute. A Senate bill introduced last week would establish a 75-25 split from a Permanent Fund draw between public services and the dividend. Under that proposal, the PFD would be roughly $1,300 this year, rising to an estimated $1,500 by the end of the decade.
“That’s probably the single most important piece of legislation to get our feet back on the ground,” said Bethel Sen. Lyman Hoffman, during a March 21 news conference. He said that there was not a united position among the 17-member bipartisan Senate majority caucus on the size of this year’s dividend, but that a larger PFD would require new state revenue.
This story includes reporting from the Alaska Beacon, an independent, donor-funded news organization.
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