The Alaska Senate approved its version of the state budget Wednesday, including a $1,000 Permanent Fund dividend and, for now, a $150 million surplus. But senators say they expect that surplus to evaporate in the year to come, and they’re warning of rough seas ahead.
“It's clear to me that the decisions next year will be even more difficult than the decisions that we have made today,” said Sen. Lyman Hoffman, D-Bethel, the Senate Finance Committee co-chair responsible for the operating budget.
In an effort to avoid using the state’s $2.8 billion savings account, the Constitutional Budget Reserve, senators stripped out nearly every budget increase requested by the governor and those approved by the House in its version of the budget last month.
In total, the Senate’s version of the budget is $350 million less than was approved by the House, and $1.7 billion less than Gov. Mike Dunleavy proposed, according to the Legislature’s nonpartisan budget analysts.
“Now is the time to preserve our rainy-day fund for the coming storm,” Hoffman said.
Winds from that coming storm are already buffeting the current year’s budget.
One particularly stiff headwind is the worsening outlook for oil prices. As of Monday, a barrel of Alaska North Slope crude went for $65.63, according to the state Department of Revenue, below the $68 figure state forecasters said they expected in their March revenue forecast.
And it’s not looking like that headwind will let up anytime soon. The federal Energy Information Administration, in a forecast released Monday, said it expected oil prices to fall further due in part to slowing global economic growth fueled by President Donald Trump’s tariffs. A boost in OPEC production is expected to push prices down further. And though Trump has sought to expand oil production in Alaska, that’s not likely to provide relief in the short term, since drillers’ capital investments count against their tax bills.
State officials warned Hoffman and other legislative budgeters that prices could average as low as $64 a barrel in the coming fiscal year, he said.
Another headwind Hoffman identified is federal spending. The federal government is the biggest single source of state revenue.
“The state's budget has over $6 billion in federal revenues that help pay for many services, from Medicaid and heating assistance to fish and game research and K 12 education,” Hoffman said.
Even a 5% cut to federal spending would leave the budget reeling, he said.
“Time will sort out what funds are cut in Washington,” Hoffman said. “If only 5% of the federal revenues are cut to the $6 billion that we receive, that would leave an impact of over $300 million to our budget.”
On the Senate floor Wednesday, there was, as there has been for roughly the past decade, debate over how big the Permanent Fund dividend should be. The planned $1,000 figure would be the lowest inflation-adjusted dividend in state history. Even Hoffman said it would be too little.
But the debate was, at times, halfhearted. There were familiar attempts to raise the dividend to the amount set out in state law — nearly $3,900 this year — and the amount specified by a 50-50 formula Dunleavy proposed in 2021. Senate Minority Leader Mike Shower, R-Wasilla, put forward and quickly withdrew amendments that would raise the dividend to those amounts.
He did it largely for the Alaskans watching the proceedings at home, he said, simultaneously acknowledging the lean times now and to come made it unrealistic.
“This is not forgotten,” he said. “The headwinds of the fiscal situation and other things are changing that dynamic at the moment.”
The one dividend amendment that did come to a vote — a Shower proposal to boost it to $1,500, a move that would require exceeding the government’s 5% annual drawdown from the Permanent Fund set out in state law — failed with the bipartisan, Democrat-heavy majority caucus in opposition.
There was also plenty of debate about how the state should fix its structural budget issues. There were calls from, among others, Sen. Bill Wielechowski, D-Anchorage, to expand state revenue.
“We are not following our constitutional obligation to get the maximum value for our resources,” he said. “You want a full PFD, you want a half PFD, a 50-50, PFD, you’ve got to fix oil taxes.”
The Legislature has passed one bill that would raise state revenue, a corporate income tax change aimed at bringing in more money from out-of-state companies, but has failed to come to terms on other proposals that would expand taxes on oil-producing businesses.
And there were calls from others, including Shower, to return to negotiations on a long-term fiscal plan — including an expansion of taxes and ways to keep government spending in check, like a spending cap and a periodic review of state programs.
“Part of why we are here is because we haven't enacted enough of that yet,” he said.
There was even a rebuke of the governor’s budget proposal from Republican Sen. Rob Yundt, R-Wasilla. Dunleavy’s budget, released in December, proposed drawing $1.5 billion from the $2.8 billion rainy-day fund.
“I cannot wrap my mind around walking into my house and dropping a budget on my wife's desk that's a billion and a half dollars upside down on Day One,” Yundt said. “It shouldn't even be legal.”
Hoffman said it was a herculean task to construct a balanced budget given all of the state’s headwinds, and he said he’s not happy with the budget’s cuts to key programs, from child care to corrections.
“We all wish we could provide all the services that every Alaskan desires. But that is not reality,” he said. “The bottom line is, our constituents want and deserve more.”
At the end of it, though, he said lawmakers had no choice.
The budget passed 16-4, with votes from all of the bipartisan majority caucus and two minority Republicans, Sens. Mike Cronk, R-Tok, and James Kaufman, R-Anchorage, who said they were glad their voices were heard in the Finance Committee.
The budget now goes back to the House, which is likely to reject the Senate’s changes in a simple up-or-down vote, setting up a conference committee to hammer out a final budget proposal. Senators said they expected the conference committee to convene early next week.
The House and Senate have until midnight May 21, the constitutional end of the legislative session, to approve a final budget.
