Alaska Legislature starts annual budget process with high oil prices, influx of federal funds

JUNEAU, Alaska (KTUU) - The Alaska Legislature has started preparing the budget for the upcoming fiscal year with an influx of federal funds and high oil prices anticipated to bring in around $1 billion more in revenue compared to a year ago.

Gov. Mike Dunleavy’s budget proposal was unveiled in December. It calls on legislators to spend more on education, public safety and to support the 50-50 Permanent Fund dividend.

If approved by the Legislature, Alaskans would receive a dividend of roughly $2,500 per person in 2022. Dunleavy also wants legislators to approve a supplemental PFD payment of $1,250 to create a 50-50 dividend for last year.

But to balance the budget, the governor proposes using $375 million from a federal coronavirus package to replace state dollars. Without that federal funding, the state would be almost $350 million in deficit, according to data from the nonpartisan Legislative Finance Division.

With a balanced budget that doesn’t rely on federal funding, the Legislature could approve a PFD of roughly $2,000 per person, an increase of almost $900 per person from last year.

Rep. DeLena Johnson, R-Palmer, applauded the governor’s team for the budget proposal and said at first glance that it makes sense.

“When you have a budget that’s balanced this well, it means you’re not taxing too much, you’re not taking too much of the people’s money,” she said.

Other legislators, like Rep. Bryce Edgmon, I-Dillingham, are skeptical, particularly about relying on anticipated revenue from high oil prices.

“I don’t view this as a fiscally conservative budget,” he said. “I view this as a budget that spends money that we don’t quite have yet.”

The state’s main savings accounts have been depleted by years of deficit spending to balance the budget, meaning if oil prices drop that there would be little margin of error to bridge a fiscal gap, said Alexei Painter, head of the Legislative Finance Division.

A competing challenge for legislators is the lingering economic impacts of COVID-19. Rep. Sara Rasmussen, R-Anchorage, suggested that should be a consideration as legislators write the budget.

“Alaskans may need additional help this year,” she said about the federal relief package. “And if we can provide that to them, I don’t see why we wouldn’t.”

A relative unknown in the budget process is how billions of dollars in federal infrastructure funding can be spent over the next five years. The state of Alaska is waiting for guidance from the federal government, but Dunleavy has proposed using some of that money to pay for most of the operating costs of the Alaska Marine Highway System and to replace the M/V Tustumena.

As legislators debate the current budget, there are questions too about implementing a longer-term fiscal plan. With a 50-50 dividend, the Legislative Finance Division is projecting that there would be a deficit of between $300 and $500 million each year over the next 10 years.

Some legislators, like Sen. Natasha von Imhof, R-Anchorage, and Edgmon are suggesting spending more now and creating deficits in the future would be unwise. Von Imhof asked the Dunleavy administration about plans to save some of the unanticipated revenue for a rainy day.

Neil Steininger, director of the Office of Management of Budget, said $172 million would be put into savings through the governor’s budget proposal. That figure could rise if oil revenue increases, he added.

Yet another challenge is which revenue figures legislators should use. The Department of Revenue has historically published forecasts in the fall and spring to guide legislators as they write and then finalize the budget.

Now, the Dunleavy administration is moving to monthly revenue announcements. The most recent figures show that the state of Alaska is forecast to receive $467 million more in revenue compared to projections made in the fall.

Sitka Republican Sen. Bert Stedman manages the budget in the Senate and suggested that change could spark confusion.

“You can’t have the Legislature having different numbers than the administration,” he said.

He is also urging caution for legislators so they don’t get caught in the “euphoria” of high oil prices.

“We have to fix the structural deficit,” he said. “We can’t pretend it doesn’t exist.”

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