Alaska Legislature Facing First Budget Deficit In Nearly A Decade

For the first time in nearly a decade, the state legislature is in a position where it could have to spend more money than it takes in.

Fiscal analyst David Teal spoke before the Senate Finance Committee on Wednesday, and he says that it’s an unusual position for a state that’s brought in extra revenue for almost a decade.

“So, you’re back this year and instead of debating how much of the surplus to spend and how much to save, you’re probably facing withdrawal from savings,” Teal said.

Teal says that using the governor’s $13 billion spending proposal as a starting point, the legislature doesn’t have a lot of wiggle room. When Gov. Sean Parnell rolled that plan out, it was already pitched as a belt-tightening. Last year, Parnell signed off on nearly $2 billion for capital projects like highway repairs and school renovations. This year, he wants to see that spending cut by half, and he wants to keep the operating budget nearly flat. Under his proposal, the legislature was expected to have about $500 million to allocate as it pleases before having to withdraw
from the state’s savings.

But that $500 million number isn’t exactly right. Teal says it’s closer to $250 million, since the governor’s plan left out a major allocation to Alaska Industrial Development and Export authority and since a chunk of that money is already a savings withdrawal. On top of that, Teal says a lot of that money may have to go toward padding the operating project instead of toward building projects.

“So, my guess, and it’s just a guess, is that you will not be able to spend the full surplus of $263 on capital projects, unless you dip into savings, and that’s because you’re going to find it difficult to hold the operating budget to that one percent or $52 million increase,” Teal said.

The Legislative Finance Division’s assessment found that operating costs may have to be increased because negotiations with the biggest state unions haven’t concluded and their requests aren’t factored into the budget. Teal added that some of the projections in the governor’s budget don’t match traditional operating costs and that there could be extra pressure this year to increase education funding.

All that combined means that the legislature could have to use some of the state’s savings to craft the budget it wants. Teal says that while that sounds scary, Alaska is still in relatively good shape.

“I don’t mean the message here to be gloom and doom. I don’t think it is gloom and doom relative to other states’ budgets,” Teal said.

Right now, the state has $16 billion saved in its reserves.

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