Alaska lawmakers are told state finances are strained amid budget and education debates

JUNEAU — State senators heard on Thursday that based on current revenue forecasts, Alaska legislators will struggle to balance the budget with big-spending items still to be considered.

The nonpartisan Legislative Finance Division explained that items in legislation currently advancing, like benefits for low-income seniors and funding needed to start upgrading the Railbelt’s electrical grid, would still need to be added to the Legislature’s budget. Other proposals, such as Gov. Mike Dunleavy’s $55 million in teacher bonuses, would further strain state finances, senators said.

An updated revenue forecast is due by March 15, which will give legislators a clearer picture of the state’s finances as they finalize the budget for the fiscal year that starts July 1. Legislators were told Thursday not to expect significant changes from a December revenue projection.

Sitka Republican Sen. Bert Stedman, who manages the operating budget in the Senate, said it would be a challenge this year for legislators to make expenditures equal revenues. He said Tuesday that the Senate Finance Committee would take a “hard look at the operating budget” to see where cuts could be made to free up additional revenue.

In December, Gov. Mike Dunleavy proposed a largely status quo budget with a $3,500 full statutory Permanent Fund dividend. But the governor’s budget plan would also leave the state with a roughly $1 billion deficit, requiring a draw from savings.

The bipartisan Senate majority caucus has been uninterested in spending from the state’s main $2.8 billion savings account to balance the budget, which requires a three-quarters supermajority vote of the House and Senate.

The Senate is planning on a roughly $1,360 Permanent Fund dividend following the 75-25 formula, where three-quarters of an annual draw from the Permanent Fund goes to fund state services, and one-quarter goes to the dividend.

The Republican-dominated House majority last year supported following a formula that doubles that share of the draw spent on dividends. This year, the dividend under a 50-50 formula would be roughly $2,277 per person, but that would leave the state almost $900 million in deficit.

As a budget compromise, lawmakers last year approved using unanticipated oil revenue to boost state savings and to pay an extra energy relief check this year. Senators heard Thursday that the energy relief check would be approximately $175 on top of the dividend.

Together, both checks being considered by the Senate would add up to approximately $1,535 per eligible Alaskan, and over $2,400 if House Republicans’ preferred dividend formula from last year was followed.

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The Senate has factored into its budget-making process the roughly $200 million bipartisan education package that overwhelmingly passed the Legislature earlier in the week. Additional state funds would be needed this year as grants for eligible schools to boost their internet download speeds.

During an hourlong Tuesday press conference, the governor threatened to veto the Legislature’s school-funding bill unless some of his education priorities were approved, including close to $55 million in teacher bonuses.

Dunleavy on Tuesday acknowledged the state’s tight fiscal outlook and said that not everything in the Legislature’s final budget was certain to get funded, including education spending.

“Are we going to be able to fund everything we want? I don’t think so. Not with the income that we have right now,” he said.

Legislators are facing a March 14 deadline to approve Dunleavy’s education priorities or face his veto pen. While House members across the political spectrum have been more amenable to the governor’s teacher bonus proposal, members of the Senate expressed concerns.

“I don’t see where there would be room to address the bonuses given our current financial situation,” said Sen. Lyman Hoffman, a Bethel Democrat, during Thursday’s fiscal outlook presentation.

Legislators are anticipating that significant new spending will be considered for the next fiscal year’s budget, which would further tighten state finances.

The Senate expects that over $23 million will be needed for monthly payments for low-income seniors; that $30 million would be required this year to start modernizing the Railbelt’s electrical grid: and that the Alaska Marine Highway System will need an additional $38 million in state funding in case Alaska misses out on federal grants.

Due partly to Dunleavy’s 2023 vetoes, Alexei Painter, director of the Legislative Finance Division, on Thursday said the state was expected to end the current fiscal year roughly $110 million in surplus. That additional revenue could boost state savings or be used to pay for current fiscal year budget items, he said.