Even with a slimmer Permanent Fund dividend, low oil prices generate deficits in Alaska

Gov. Mike Dunleavy
Alaska Gov. Mike Dunleavy speaks about the state’s spring revenue forecast on March 21, 2023, at the Atwood Building in Anchorage. (Sophia Carlisle/Alaska Beacon)

Lower oil prices have torn big holes in the Alaska state budget, the Department of Revenue said Tuesday, releasing new estimates showing a deficit of about $220 million in the fiscal year that ends June 30 and another deficit of about $240 million in the year that starts July 1.

State legislators have already agreed to spend from savings to fill the current deficit by spending from the state’s Constitutional Budget Reserve, they said Tuesday, but it’s not yet clear how they’ll address the deficit in the upcoming fiscal year. 

Members of the predominantly Republican House majority coalition have already taken a major step to address the situation by proposing to cut this year’s Permanent Fund dividend from the amount proposed by Gov. Mike Dunleavy in December.

Under the governor’s original proposal for the budget that starts July 1, the deficit would be between $890 million and $920 million, depending on the estimate used. Alexei Painter, director of the nonpartisan Legislative Finance Division, and Neil Steininger, director of the governor’s Office of Management and Budget, each offered different figures.

On Monday, the House Finance Committee proposed a new budget draft that cuts the governor’s proposed $3,860 per-person dividend to about $2,700 per person. That drops the anticipated deficit to about $240 million.

That figure doesn’t include the estimated $250 million price tag of a proposed increase to the state’s per-student funding formula for K-12 schools, or any construction or renovation projects typically added to the budget by legislators annually. Those items were not included in the governor’s proposed budget and are not included in the House budget.

Rep. DeLena Johnson, R-Palmer and co-chair of the House Finance Committee, said on Tuesday that further actions will be forthcoming.

The new smaller revenue forecast, she said, “is the elephant in the room.”

Before lawmakers eat the elephant in fiscal year 2024, they’ll have to take care of the one in fiscal year 2023, which ends June 30.

Legislators typically include language in the budget that says any deficits will be automatically filled by the state’s Constitutional Budget Reserve, but the budget they approved last year lacks that language, instead saying that any deficits should be filled by a state savings account that’s easier to access, the Statutory Budget Reserve.

That account holds only about $20 million, Painter told the Senate Finance Committee earlier this year, not enough to cover the deficit.

Spending from the constitutional reserve requires three-quarters of the Senate and three-quarters of the House to agree.

The bipartisan Senate majority includes 17 members, and if all agree, that’s enough.

“I would expect that the Senate would support three-quarter vote access to the CBR not only in ’23, but in ’24,” said Sen. Bert Stedman, R-Sitka and co-chair of the Senate Finance Committee.

In the House, the majority coalition is only 23 members and not all members are required to vote together. That means the votes of the 16-person minority caucus are needed.

A bill proposed by Dunleavy to cover state costs through June, known as the “fast-track” supplemental bill, is making its way through the Legislature.

House Minority Leader Calvin Schrage, I-Anchorage, said that if the fast-track bill doesn’t change before the final vote — floor amendments are possible — the minority is prepared to support the Constitutional Budget Reserve vote.

“We’re going to do our due diligence to make sure that that’s tight and been buttoned up, but assuming it is, I tentatively intend to have our caucus support the CBR,” Schrage said.

Gov. Mike Dunleavy, speaking to reporters in Anchorage on Tuesday, said he doesn’t see any problems with using the CBR to cover the deficit this fiscal year.

The CBR contains only about $2 billion, and the state uses it to manage fluctuations in cash flow; if its balance drops too far, there could be problems, state accountants have warned.

When asked how the state will deal with the deficit in fiscal year 2024, the governor was equivocal. He said there will be discussions about cuts, discussions about new revenue, and for the moment, the issue is in the hands of the Legislature. 

“And so the real process of hammering out this budget kind of begins now,” he said.

Alaska Beacon is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Alaska Beacon maintains editorial independence. Contact Editor Andrew Kitchenman for questions: info@alaskabeacon.com. Follow Alaska Beacon on Facebook and Twitter.

Alaska Beacon is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Alaska Beacon maintains editorial independence. Contact Editor Andrew Kitchenman for questions: info@alaskabeacon.com. Follow Alaska Beacon on Facebook and X.

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