The Alaska Legislature is considering a roughly $200 million draw from savings to address a deficit for the fiscal year that ends June 30. That would still leave lawmakers with an additional gap of several hundred million dollars in the budget year that starts July 1.
Declining oil revenue has helped balloon the state’s deficit. That’s due to lower-than-expected oil prices and an increase in oil company expense deductions for investments in new fields.
In total, the Legislature is facing a roughly $680 million deficit over two fiscal years based on status quo spending, according to the nonpartisan Legislative Finance Division.
As a result, legislators are facing tough budget choices this year. The annual Permanent Fund dividend is competing against widespread calls to substantially increase school funding.
Leaders of the Senate majority coalition have said new revenue measures should be considered to bridge the state’s fiscal gap. Senate majority members have introduced bills to increase oil taxes, and to collect corporate income taxes from some out-of-state businesses that operate online.
But tax hikes appear to face long odds of being approved by the Alaska House.
The Democrat-dominated House majority has 21 seats, the bare minimum needed to govern the 40-member chamber. But that slim majority does not hold up for tax legislation.
Anchorage Republican Rep. Chuck Kopp, who serves as House majority leader, has joined minority House Republicans in opposing new tax measures proposed by the Senate.
In an interview, he said the Legislature should prioritize spending on core services such as education, public safety and transportation. “I personally am not committed to raising revenue to pay a dividend,” he said.
Bethel Democratic Sen. Lyman Hoffman, who manages the Senate’s operating budget, has said new revenue measures are among the Senate majority caucus’s top three priorities.
House Republicans may oppose new taxes, but Hoffman asked rhetorically, “If not that, what is their solution?”
“Obviously, we can’t continue on this course, because the numbers aren’t there,” he said at a March 25 media conference about the state’s fiscal shortfall.
Legislators are facing a substantial deficit as they craft a budget for the fiscal year that starts on July 1.
Last year, lawmakers approved a PFD using the “75-25” model where three-quarters of the annual draw from Permanent Fund earnings would be directed to state services and the rest would go to the dividend.
Under that formula, the dividend this year would be roughly $1,400, at a cost to the state of $950 million.
The other big-ticket budget item confronting the Legislature is state funding for local schools.
The Legislature approved $175 million last year in additional school funding on a one-time basis. But repeating that amount, or adding to it, as school advocates want, would further expand the state’s budget deficit.
House majority members have supported increasing school spending above what the Legislature appropriated last year.
The House passed a sweeping education measure earlier in the month. The cost of the school funding boost: $275 million per year, which would add another $100 million to the deficit.
Leading House majority members have suggested reducing the dividend to help balance the budget.
Eliminating the House’s entire shortfall by shrinking the dividend would see a $570 PFD paid this year, according to the Legislative Finance Division.
Anchorage Democratic Rep. Andy Josephson, who manages the operating budget in the House, said there is virtually no support in the chamber for a $570 dividend. Instead, he has suggested paying a $1,000 PFD this year.
But that still leaves a budget deficit, unless lawmakers raise taxes on oil companies or approve other new revenues.
“Whittle this thing down to the barest of the bare bones, I still think you need $150 million,” Josephson said about the budget gap for the fiscal year that starts July 1.
He said a savings draw could be needed to bridge the fiscal gap for fiscal year 2026. But it’s unclear if that would garner the required support. A three-quarters vote of both the House and Senate is required to draw from the $2.8 billion Constitutional Budget Reserve Fund. That requirement for a super-majority gives minority members of each chamber political leverage — their votes would be needed to pass the budget bill.
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