State headed to budget deficit as revenues come up short

The state is bringing in less money than it is spending and is on pace to finish the current fiscal year with a deficit of $171 million, according to figures presented Feb. 4.

Lacey Sanders, Gov. Mike Dunleavy’s top budget official, told the Senate Finance Committee that spending from the Constitutional Budget Reserve Fund likely will be needed to close the gap before the Legislature’s scheduled adjournment in May.

That would require support from three-quarters of the House and three-quarters of the Senate — usually a politically fraught negotiation. Neither the majority caucus in the House nor the majority caucus in the Senate have enough votes, requiring negotiations with the all-Republican minority caucuses in each body.

While the numbers appear grim, they may not be as bad as they seem. That’s because they rely on last fall’s estimate of oil price and production.

At that time, the Alaska Department of Revenue estimated that North Slope oil would have an average value of $74 per barrel for the current fiscal year, which ends July 1. Through Feb. 4, the average price has been $76.

In this price range, every dollar difference is worth between $35 million and $40 million, said Alexei Painter, director of the Legislative Finance Division, last week.

If prices stay around $76, it’s likely enough to drive the deficit to less than $100 million. The Department of Revenue is expected to release an updated revenue forecast later this spring.

The state fiscal year ends June 30.

Much of the remaining deficit comes from late budget revisions proposed by Dunleavy.

Those revisions are normal: Every year, the governor and legislators revise the budget they passed the previous year by enacting a “supplemental budget” to deal with things like unforeseen expenses or unexpected federal grants.

This year, Dunleavy has requested $97.5 million in supplemental operating budget changes for undesignated general fund dollars, and that cost is included in the $171 million deficit estimate.

Lawmakers could revise those figures upward or downward by adding or subtracting items from the governor’s proposal.

The biggest single item, one proposed by the governor in December, is $50 million for the Alaska Gasline Development Corp. to continue its decade-long work on the proposed Alaska North Slope natural gas pipeline project.

The $50 million would be used to underwrite the participation of a private company in the development of the pipeline’s engineering and design. According to documents provided to the Legislature, If the company decides to not proceed with the pipeline, the state would reimburse the company for the $50 million. If it decides to go ahead, the company would assume the cost and the state would keep the $50 million.

The governor’s supplemental spending request also includes $10 million for the Alaska Seafood Marketing Institute. That’s the same amount of money that Dunleavy vetoed from the seafood promotion agency’s budget last year.

The Alaska Beacon is an independent, donor-funded news organization. Alaskabeacon.com.

 
 

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