If you ask Gov. Mike Dunleavy, a lot of the state’s problems come back to the budget process.
Every year, lawmakers gather in Juneau for four months and spend much of that time debating how the state should spread around its limited funds: how much for education, how much for public safety, and for the last decade or so, how much the Permanent Fund dividend should be.
Meanwhile, much of the state’s revenue depends on the constantly swinging price of oil. Dunleavy says investors who might otherwise bring jobs and new residents to the state have noticed.
“We know that this volatile budgetary process has negatively impacted our ability to recruit investment to the state. It has retarded our GDP growth. It has caused deep fractures within this body and within other relationships, and it leads to uncertainty in funding for critical programs,” Dunleavy told lawmakers and Alaskans in his State of the State speech.
In the days after his speech, Dunleavy filed a series of bills outlining a fiscal plan that he the governor believes would make the budget more stable by boosting revenue and cutting expenses.
It’s a problem Alaska has wrestled with for years: the state spends more than it takes in. Since oil prices crashed in the mid-2010s, Alaska has drawn down billions from its savings accounts, cut government spending and reduced residents’ Permanent Fund dividends in an effort to ensure schools, state troopers, highways, ferries and fish and game management are funded.
Most of the money Dunleavy’s multifaceted plan would raise would come from a sales tax — 4% in the summer, 2% in the winter. The plan would also hike oil taxes, add a new per-barrel surcharge for pipeline corridor maintenance, and capture more money from Outside businesses. It would all be temporary, roughly five to seven years — and in 2031, corporate income taxes would vanish entirely.
On the expense side, it would put a 1% cap on state spending growth every year. That’s not adjusted for inflation. So if inflation runs more than 1%, state spending shrinks. (For reference, the Federal Reserve targets 2% inflation each year; in 2025, inflation was 2.7%, according to the Bureau of Labor Statistics.)
An additional check on expenses in Dunleavy’s plan is what’s known as a sunset review — lawmakers would periodically have to vote to reauthorize various pieces of government.
Dunleavy’s plan would also take Permanent Fund dividends out of the state’s annual budget debates by putting it — and a new formula — into the state Constitution.
“At no point do any of these things add up to get to a balanced budget,” said Neil Steininger, a former Dunleavy budget director who crunched the numbers for the Alaska Political Report, a subscription newsletter.
For one thing, Dunleavy’s plan would fully drain the state’s $3 billion rainy day fund by the end of the 2033 fiscal year, according to Steininger’s analysis — not exactly resolving the state’s budget issues.
For another, Steininger said, the effect of the changes would ultimately make the state’s revenue just as volatile, if not more — exactly what Dunleavy is trying to avoid.
That’s a result of Dunleavy’s proposed formula for dividends, which would take half of the state’s annual draw from the Permanent Fund and split it 50-50 between state services and dividends.
The fact that so much “stable, reliable” investment revenue would be tied to dividends would make the state more dependent on the price of oil, Steininger said.
“That's a position we've been in already,” Steininger said. “That's actually nothing new. It's just really cementing that into the Constitution.”
The governor has not held a news conference or granted interviews to discuss his plan since the bills were released, but his office’s projections are substantially rosier.
An updated 10-year plan from his Office of Management and Budget shows a surplus in the early 2030s, peaking at roughly $300 million, before returning to large deficits in the 2035 fiscal year. But the governor’s office still projects the plan would draw down half of the rainy-day fund over 10 years, including a $1.4 billion withdrawal in the coming year.
Dunleavy has argued revenue from things like a boom in oil drilling or a new gas pipeline would help the budget balance in the long term.
“We're going to be going into what I believe is going to be a more revenue-prosperous era,” he said at a Cabinet meeting before the plan was released.
But that future revenue is speculative, and thus doesn’t show up in state economists’ “cold and sober” revenue projections that lawmakers build the state’s budget around, Steininger said.
“Part of it is because a lot of that stuff will take a long time before it impacts state revenue,” Steininger said. “Even though 10 years feels like a long time … it's not that long when it comes to trying to get a project permitted, moved and actually delivering revenue to the state coffers.”
Dunleavy’s Department of Revenue presented a newer fiscal model to lawmakers on Thursday, which accounts for revenue from the proposed Alaska LNG project and a new split of oil revenue from the federally-owned National Petroleum Reserve Alaska in the Western Arctic enabled by President Trump’s signature tax- and spending-cut bill.
“That modeling does roughly balance” even after the taxes expire, Department of Revenue Chief Economist Dan Stickel said to lawmakers on Thursday.
So far, the plan has landed in Juneau with a thud. Speaker of the House Bryce Edgmon, a Dillingham independent, said alongside other legislative leaders on Talk of Alaska on Tuesday that he’s not optimistic about its chances.
“The early analysis that we’ve done … would suggest that the governor's plan, in its totality, would actually increase our problem, it would not lessen it,” Edgmon said.
Even Dunleavy’s traditional allies are skeptical — the Republican House minority leader, Palmer Rep. DeLena Johnson, called his plan “incomplete.”
“I think it's very difficult to ask your average, hardworking Alaskan to increase their grocery budget” without a serious analysis and reduction of government spending, Johnson said.
But where does that leave state leaders’ search for a solution?
Edgmon and his Senate counterpart said they were intrigued by what they recently heard from a panel of University Alaska Anchorage economists who studied a variety of options at the request of the governor.
Senate President Gary Stevens, a Kodiak Republican, says he was interested in the economists’ conclusion that raising taxes on corporations and oil and gas would have the smallest impact on the state’s economy.
“It's much more stressful on folks to have a sales tax or an income tax,” Stevens said. “(It’s) easier to accumulate a little higher tax on the industry.”
But in the last year of Dunleavy’s term, Stevens said, it might be too late for this governor to solve the problem.
The House Finance Committee is taking public testimony on Dunleavy’s tax bill, House Bill 284, at 5:30 p.m. Thursday. There’s more information on the Public Testimony Opportunities page at akleg.gov.
