Alaska Gov. Dunleavy presents amended state budget with deficit topping $400 million

JUNEAU — Gov. Mike Dunleavy’s amended budget unveiled Wednesday attempts to address some crisis areas in Alaska and would see an anticipated deficit top $400 million.

The proposed budget for the next fiscal year is updated from his initial proposed budget announced in December. At that time, Dunleavy’s largely flat spending proposal had a $322 million deficit, with a $2.5 billion full statutory Permanent Fund dividend at roughly $3,900. The statutory PFD remains in his amended budget.

Dunleavy said Wednesday that to bridge the fiscal gap, the Legislature could draw from the Constitutional Budget Reserve — the state’s main savings account — which has a balance of around $2.3 billion.

The governor has said that his plans for a carbon credit and sequestration program could provide a new billion-dollar revenue stream. But he acknowledged that those proposals would likely take at least one or two years to provide new revenue. The Alaska Legislature has said it will hire its own independent consultants to vet the governor’s proposals.

“The sooner we act on it, the sooner we’ll know,” Dunleavy said about the revenue potential of monetizing carbon.

[Gov. Dunleavy says his carbon storage bills could bring Alaska ‘billions,’ but many unknowns remain]

The Legislature convened in January with historic oil price volatility. The Alaska North Slope crude oil price has dropped by more than a third since June last year and has hovered around $80 per barrel since the start of the year — well below December projections.

“We can’t afford a $2.5 billion dividend, that’s just a plain fact,” said Sitka Republican Sen. Bert Stedman, who manages the operating budget in the Senate. He said he expected the deficit would balloon to over $500 million once other spending needs were identified.

Dunleavy’s proposed additions to the budget for the fiscal year starting July 1 total $108 million in state dollars. Supplemental spending for the current fiscal year requires an additional $114 million from state coffers, according to the Dunleavy administration. The governor is requesting new appropriations to address multiple ongoing crises in Alaska:

• An extra $8.3 million for the Office of Public Advocacy and the Public Defender Agency. The funding would be partly used to address a public defender shortage, which the agency cited in early February while announcing that it would stop accepting new clients who face serious felony charges filed in the Nome and Bethel Superior Courts.

• $9 million added to the Division of Public Assistance, which is contending with significant backlogs processing applications for food stamps and Medicaid, leading to Alaskans waiting months for aid.

• $54 million — including $17 million in state funds — to move to a modern IT system used at the Division of Public Assistance to process applications for aid programs. State officials have cited the current antiquated system as one of the causes of the ongoing backlogs.

Commissioner Heidi Hedberg said the state Department of Health, which oversees the public assistance division, has sought to hire 30 additional nonpermanent staff to address the food stamps and Medicaid backlog, and that “we’re getting really close to being full-staffed.” Staff at the department are currently working through the November applications for food aid, she said.

One of the biggest outlays in Dunleavy’s amended budget in state dollars is for Medicaid. The end of the federal COVID-19 emergency means the federal government’s extra pandemic-era contributions to the health care program will wind down over 2023. An additional $24 million would be needed from the state treasury to make up for that shortfall.

The Dunleavy administration is also proposing that the Legislature appropriate an additional $18 million to help pay for a looming Medicaid recertification effort.

[Alaska is scrambling to clear a monthslong food stamp backlog as major Medicaid change looms]

In exchange for extra federal COVID-19 funding, states agreed in 2020 to keep Medicaid recipients enrolled in the program until the end of the public health emergency. A federal spending bill passed in December ended that moratorium, and normal Medicaid eligibility requirements will resume in April.

Starting April 1, the state will need to determine if all of the roughly 260,000 low-income Alaskans receiving Medicaid are still eligible to receive benefits, a process that will be phased out over a year. The food stamps backlog delayed an outreach effort about the looming Medicaid recertification process.

In infrastructure spending, the Dunleavy administration wants to use $125 million in federal highway dollars to replace Nome roads damaged by Typhoon Merbok. The administration is also proposing to spend $7 million to upgrade the Division of Elections’ voter registration IT system and election database.

Transportation Commissioner Ryan Anderson spoke at Wednesday’s news conference about the need to capture $285 million in federal funding for the Alaska Marine Highway System. The administration is poised to adopt an “innovative” approach, where farebox revenue used to invest in maintenance and improvements would be used as a match for the federal dollars, Anderson said.

The ferry funds would be used to replace the aging Tustumena ferry, upgrade docks in Juneau and Cordova and replace docks in communities like Tatitlek and Pelican. There is funding to build an electric ferry and for design planning to build another diesel-electric hybrid ship — likely replacing the 60-year-old Matanuska, which is in dry dock and may not sail again.

The state’s fiscal situation is tighter than some legislators may think, Stedman said. That could pose challenges for those who were expecting higher revenue projections and grew used to over $1 billion in federal COVID-19 aid, which helped paper over some of the state’s fiscal challenges, he said.

“From what I understand, they’re running around the building like little piggies in the financial trough,” Stedman said about his colleagues.