State Faces Big Deficit, Budget Official Warns

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Created on Tuesday, 04 February 2025 15:16

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By JAMES BROOKS
Alaska Beacon
    The state of Alaska is bringing in less money than it is spending, and is on pace to finish the current fiscal year with a deficit of $171 million, according to figures presented today.
    Lacey Sanders, Gov. Mike Dunleavy’s top budget official, told the Senate Finance Committee that spending from the Constitutional Budget Reserve likely will be needed to close the gap. To do this would require support from three-quarters of the House and three-quarters of the Senate.
    That’s a critical threshold: neither the majority caucus in the House nor the majority caucus in the Senate have enough votes, requiring negotiations with the all-Republican minority caucuses in each body.
    While the numbers appear grim, they may not be as bad as they seem. That’s because they rely on last fall’s estimate of oil price and production.
    At that time, the Alaska Department of Revenue estimated that North Slope oil would have an average value of $74 per barrel for the current fiscal year, which ends July 1. Through Monday, the average price has been $76.
    In this price range, every dollar difference is worth between $35 million and $40 million, said Alexei Painter, director of the Legislative Finance Division, last week.
    If prices stay around $76, it’s likely enough to drive the deficit to less than $100 million. The Department of Revenue is expected to release an updated revenue forecast later this spring.
    Much of the remaining deficit comes from late budget revisions proposed by Dunleavy.
    Those revisions are normal: Every year, the governor and legislators revise the budget they passed the previous year by enacting a “supplemental budget” to deal with things like unforeseen expenses or unexpected federal grants.
    Tuesday is the last day for Dunleavy to add or subtract items to the supplemental budget.
    This year, Dunleavy has requested $97.5 million in supplemental operating budget changes, and that cost is included in the $171 million deficit estimate.
    Those changes are spread across two separate bills — a “fast-track” budget bill designed to pass ahead of the main budget, and the main budget for the fiscal year that starts July 1.
    The $97.5 million includes only general-purpose state revenue, known formally as “undesignated general funds.”
    There are almost $550 million in supplemental changes overall, if federally funded and fee-funded changes are included.
    Lawmakers could revise those figures upward or downward by adding or subtracting items from the governor’s proposal. Normally, the items funded by general-purpose revenue garner the most attention because those contribute to the deficit.
    The biggest single item, one proposed by the governor in December, is $50 million for the Alaska Gasline Development Corp. to continue work on the proposed trans-Alaska natural gas pipeline.
    The $50 million would be used to underwrite the participation of a third-party company in development of the pipeline’s front-end engineering and design. According to documents provided to the Legislature, if the company decides to not proceed with the pipeline after that work is done, it would receive the $50 million. If it decides to go ahead, the company would assume the cost and the state would keep the $50 million.
    Another $10 million has been earmarked for the Alaska Seafood Marketing Institute, there’s an additional $14.2 million for Medicaid expenses, $3.9 million in pay increases for the Department of Corrections, and almost $2.8 million to pay for court cases lost by the Department of Law.
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https://alaskabeacon.com/james-brooks

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