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Another session full of budget issues awaits state lawmakers in Juneau

The Alaska House of Representatives passes a resolution during the state's 31st legislative...
The Alaska House of Representatives passes a resolution during the state's 31st legislative session, pledging not to overdraw the Permanent Fund. (03/02/20)(KTUU)
Published: Jan. 8, 2021 at 8:40 PM AKST
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ANCHORAGE, Alaska (KTUU) - On Friday, members of Alaska’s House Finance Committee held a teleconference to take its first close look at Gov. Mike Dunleavy’s proposed budget for the upcoming fiscal year.

Testifying before the committee, oil and gas analyst Larry Persily and Legislative Finance Division Director Alexei Painter laid out several key concerns that lawmakers will grapple with during the state’s 32nd legislative session. While Alaska’s fiscal situation was already a difficult one before COVID-19, long-term economic damage caused by the pandemic has only added more challenges for the legislature to solve.

The governor’s plan calls for Permanent Fund dividend payouts of nearly $5,000 between the remainder of FY21 and the end of FY22. That calculates into a $3 billion draw from the Permanent Fund’s Earnings Reserve Account. That state would be left with a deficit of $2.1 billion in the upcoming fiscal year.

Dunleavy’s 10-year-plan calls for a balanced budget by FY23 but also accounts for “other revenue sources” worth more than $1.2 billion. When asked for details about a proposed plan to generate new state revenue streams, the governor’s office told Alaska’s News Source: “The pandemic has severely impacted Alaska’s economy in ways we have never seen. And we will need sufficient time to recover before any new sources are implemented.”

According to Persily, the legislators will have to act now, if they want to have new sources of revenue implemented by FY23.

He also noted that “any dividend of consequence” would likely require more than a 5% draw from the permanent fund earning account.

“Where will the money come from? That’s one question,” Persily said. “The other is, do we have enough money to last until things catch up?”

Afterward, Painter laid out specific details pertaining to the governor’s proposed budget and the policy that guided decisions from the legislature when FY21′s budget was crafted. The Division of Finance’s Director told participants in the meeting that following nine years of deficit spending, the state’s oil revenues are expected to be lower in FY22 than they have been in decades.

“It’s projected to be the lowest amount of oil revenue that the state has rough in since fiscal year 78, and that’s in nominal terms — not accounting for inflation,” he said.

Considering inflation, FY22 is actually expected to bring less oil revenue less than what Alaska took in during FY75, the year that pipeline construction began.

Painter agrees with Persily that if a new tax is to be implemented by July 2022, it will have to happen during the upcoming session. He says that considering the realities of our state’s finances, the decision will come down to whether lawmakers want to continue avoiding long-term solutions for the deficit — or if they are willing to risk draining the Permanent Fund ERA in the same manner that CBR and SBR were drained.

“You get your dessert upfront,” he said. “You get this great stimulus spending that is going to be politically popular, but with the governor’s plan you only get that if you eat your vegetables ... which are the budget cuts and the new revenues.”

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