The governor has proposed a state budget for next year that does not repeat this year’s education funding increase and pays out a $3,838 Permanent Fund dividend — and runs up a $1.5 billion deficit.
The cost of the dividend, estimated at more than $2.5 billion, consumes 40% of total available state general fund revenues.
Gov. Mike Dunleavy’s spending plan, unveiled Dec. 12, would wipe out more than half of the state’s budget reserve account.
The broad aspects of the Republican governor’s spending plan are similar to those that encountered significant resistance from a bipartisan Senate majority the past two years, when legislators approved balanced budgets with increases in education funding and much smaller PFDs.
A similar battle is likely during the coming session that begins next month, especially since the House will switch from a Republican-led majority to a coalition led mostly by Democrats.
Dunleavy, during a press conference at the Capitol, said he’s introducing a budget for the fiscal year that starts next July 1 with much the same blueprint as recent years in order to comply with state law defining the amount of PFD payments, per-pupil education funding and other items.
“You have the PFDs in law, just like some of these other programs are law,” he said. “You don’t have enough revenue, but you have savings, so you have to make a choice as to whether you’re going to reduce education or reduce other aspects of the program to get that budget balanced.”
The state has not followed the PFD formula since the 2015 payment, when declining state revenues turned insufficient to cover the full amount.
Senate President Gary Stevens, a Kodiak Republican who will preside over a 14-member majority in the 20-member upper chamber, said in a prepared statement Dec. 12: “The governor’s proposed budget is just the beginning of the process.”
The Republican-led minorities of both the House and Senate issued statements that were generally supportive of the governor’s proposed budget.
A member of the Senate Finance Committee expressed disappointment that Dunleavy didn’t submit a more realistic budget proposal that balances spending with revenues.
“I sincerely hope he engages and we can work together,” said Juneau Sen. Jesse Kiehl, a member of the majority. “But what got laid on the table today isn’t really even where we need to start our work.”
Dunleavy’s proposed plan was released on the same day as the state’s fall revenue projection, which forecasts lower oil prices and declining revenues. The Department of Revenue forecasts oil prices next year at about $13 per barrel less than just six months ago, as global markets react to an anticipated oil oversupply.
With a spending plan that exceeds revenues, and no specific proposals to deal with the gap, the 10-year state fiscal outlook published as part of Dunleavy’s budget plan shows the state’s $2.9 billion Constitutional Budget Reserve Fund going $1 billion in debt in three years and $12 billion in debt by 2035.
Though Alaska will not be broke; it has the $79 billion Permanent Fund, but most of that money is off-limits and cannot be spent without a constitutional amendment. The earnings that are available for appropriation already provide the single largest source of funds each year for the state budget, covering a majority of spending on public services and the annual dividend to Alaskans.
The dismal long-term forecast was questioned during the Dec. 12 press conference by Neil Steininger, a former budget director for Dunleavy who is now a correspondent for the Alaska Political Report.
“State statutes require that you produce a balanced budget, but they also require that your 10-year plan include the broad strokes of how you intend to address any long-term structural budget deficit,” Steininger told his former boss.
“However, last year and again this year you’ve omitted any of those statutory required discussions and solutions, and you show that savings are effectively empty when you leave office,:” Steininger said. “What policies do you plan to introduce over the next few years to ensure that Alaska’s next governor doesn’t inherit the same problems that you did and that you’ve been tackling over the last six years?”
Dunleavy responded by reiterating previously expressed optimism that President-elect Donald Trump and a Republican-led Congress will open more resource extraction activity such as oil drilling in Alaska.
“Again, I believe that the resource base of Alaska is a solution to the future,” Dunleavy said. “I believe an income tax on the people of Alaska, a sales tax on the people of Alaska, taking what’s left of the dividend from the people of Alaska — if that’s what’s going to happen I would suggest that we all invest in U-Haul, to be honest with you.”
Senate Majority Leader Cathy Giessel said it’s disappointing the administration relies on savings for the budget as well as in its 10-year state plan.
“As any family knows, repetitive spending from savings is not a plan,” Giessel, an Anchorage Republican, said in an emailed response. “The mentality that it’s OK to leave Alaskans with no savings within the next two years is disappointing. It puts the problem into the lap of the next governor.”
Second to the Permanent Fund dividend, the next largest appropriation of state general fund dollars in the budget is state funding for local school districts. That has been a contentious issue between legislators and Dunleavy, with a compromise that provided a one-time increase in state aid for the 2024-2025 school year.
The governor did not propose any increase in school funding for next year.
Dunleavy said he is willing to consider a permanent increase of $200 million to education funding — about 15% more than this year’s one-time increase — if the Legislature supports his other education policy goals such as boosting support for charter schools and homeschooling.
The Wrangell Sentinel and Alaska Beacon contributed to this report.
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