State senators heard last week that based on current revenue forecasts, legislators will struggle to balance the budget with several big-spending items still to be considered.
The nonpartisan Legislative Finance Division explained that items currently pending, like benefits for low-income seniors, funding needed to start upgrading the Railbelt’s electrical grid and a large increase in state money for public education, were not included in the governor’s proposed budget.
Other spending, such as Gov. Mike Dunleavy’s insistence on $55 million for teacher bonuses in return for not vetoing a much larger increase in state funding for public schools, would further strain state finances.
An updated revenue forecast is due by March 15, which will give legislators a clearer picture of the state’s finances as they finalize the budget for the fiscal year that starts July 1. Legislators were told at a Senate Finance Committee meeting Feb. 29 not to expect significant changes from a December revenue projection, as oil prices have held within a steady range.
Sitka Sen. Bert Stedman, who manages the operating budget in the Senate, said it would be a challenge this year for legislators to make expenditures equal revenues. He said Feb. 27 that the Senate Finance Committee would take a “hard look at the operating budget” to see where cuts could be made to free up additional revenue.
In December, Gov. Mike Dunleavy proposed a largely status quo budget of public services, with almost one-third of state general fund spending going toward a $3,500 Permanent Fund dividend this fall. But the governor’s budget plan would leave the state with a roughly $1 billion deficit, requiring a more than one-third drawdown from a savings account.
The bipartisan Senate majority caucus has been uninterested in spending from the state’s $2.8 billion savings account to balance the budget, which would require a three-quarters supermajority vote of the House and Senate.
The Senate is planning on a roughly $1,360 Permanent Fund dividend this fall, following the 75-25 formula used last year, where three-quarters of an annual draw from Permanent Fund earnings goes to help pay for public services, and one-quarter goes to the dividend.
The annual draw on fund earnings is the single largest revenue source for the state budget.
The Republican-dominated House majority last year supported doubling the share of the Permanent Fund earnings draw spent on dividends. This year, the dividend under a 50-50 formula would come to roughly $2,277 per person, but that would leave the state budget almost $900 million in the hole.
As a political compromise, lawmakers last year approved using any unanticipated oil revenue to boost state savings and to pay an energy relief check this year. Senators heard Feb. 29 that the energy relief check would be approximately $175, added to the dividend issued in October.
As to the state spending plan now before the Legislature, the Senate has factored into its budget-making process the roughly $200 million bipartisan education package that overwhelmingly passed the Legislature last week. That includes the first increase in the state per-student funding formula for local K-12 schools since 2017.
During an hourlong press conference Feb. 27, the governor threatened to veto the Legislature’s school-funding bill unless some of his education priorities were approved, including close to $55 million in teacher bonuses and a process for new charter schools to bypass local school boards and apply to the state for approval.
Dunleavy on Feb. 27 acknowledged the state’s tight fiscal outlook and said that not everything in the Legislature’s final budget was certain to get funded, including education spending.
“Are we going to be able to fund everything we want? I don’t think so. Not with the income that we have right now,” he said.
Legislators are facing a March 14 deadline to approve Dunleavy’s education priorities or face his veto pen. The governor supports one-time bonuses to help recruit and retain teachers more than he backs a permanent increase in state funding to school districts.
Even if the governor signs the education bill, he later could veto some of the money when he signs the state budget.
While House members across the political spectrum have been more amenable to the governor’s teacher bonus proposal, members of the Senate expressed concerns.
“I don’t see where there would be room to address the bonuses given our current financial situation,” said Bethel Sen. Lyman Hoffman, during the Feb. 29 fiscal outlook presentation in the Senate Finance Committee.
Separate from the school funding debate, legislators are anticipating that other significant new spending will be considered for the next fiscal year’s budget, which would further tighten state finances.
The Senate expects that over $23 million will be needed for monthly payments for low-income seniors; that $30 million would be required this year to start modernizing the Railbelt’s electrical grid: and that the Alaska Marine Highway System will need an additional $38 million in state funding in case Alaska misses out on federal grants.
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