Lawmakers face $1.5B deficit and stark fiscal situation

The Alaska Legislature is facing a stark fiscal situation as lawmakers write the budget for the next fiscal year.

The nonpartisan Legislative Finance Division presented to the House Finance Committee on Wednesday, explaining the state faces a $1.5 billion deficit if a full statutory Permanent Fund dividend is approved by lawmakers.

Falling oil revenues are made up in part by a larger figure able to be drawn from Permanent Fund earnings for state services and the dividend.

The Department of Revenue uses conservative forecasting models for oil production but doesn’t expect revenues to rise over the next decade. “That doesn’t bode very well,” said Rep. Adam Wool, a Fairbanks Democrat.

Gov. Micheal Dunleavy’s proposed budget would draw down $1.5 billion of the $2 billion Constitutional Budget Reserve (CBR), the state’s one remaining savings account. Dunleavy has said his budget is a “springboard” for conversations with the Legislature and Alaskans about their fiscal priorities.

In the past, members of the Legislative Finance Division have advised lawmakers that $1 billion should be kept in the CBR for the normal functioning of state government and to cover unexpected expenses.

On Tuesday, Rob Carpenter said $400 million would be needed in the account at a minimum.

Rep. Neal Foster, a Nome Democrat who chairs the House Finance Committee, said that $400 million figure is an “absolute minimum” but the idea of shrinking the CBR that much “makes me a little nervous.”

To complicate matters for lawmakers, Alaska is also facing a roughly $281 million supplemental budget due largely to a shortfall in funding for Medicaid and costs spent fighting fires.

At the end of the 2019 legislative session, lawmakers approved drawing $250 million from the CBR to pay for any unexpected expenses. To go beyond that figure to pay for a larger supplemental budget would require a three-quarters majority vote in both the House and Senate.