Gov. Mike Dunleavy is proposing to take more than $1.5 billion from the state’s only large savings account other than the Permanent Fund to balance his proposed spending plan for state services, disaster aid, public works projects next year — and a 2026 Permanent Fund dividend worth close to $3,700 per recipient.

The PFD would be almost four times as large as this year’s $1,000 payment to Alaskans, totaling $2.4 billion, about $1 billion more than the state spends on K-12 education.

The governor unveiled his plan Thursday, Dec. 11. The Legislature returns to work on Jan. 20, with the budget the biggest item on its calendar. The budget year begins July 1.

The governor has long campaigned on paying out a large dividend, withdrawing from the Constitutional Budget Reserve Fund to cover the cost, but the Legislature has resisted Dunleavy’s push since his first budget in 2018.

Dunleavy, who is term-limited and unable to run for governor again, is entering his final year in office.

The Budget Reserve Fund now stands at almost $3 billion; the governor’s proposed spending plan would drain more than half of the account.

Alongside his annual budget proposal, the governor unveiled a draft 10-year plan that relies on billions in new tax dollars or other revenues to cover budget deficits in future years, especially since the Budget Reserve Fund would be depleted. He offered no details on where the new revenues would come from.

The long-term fiscal plan is required by state law.

Alaska has no statewide personal income tax or sales tax; more than 60% of general-purpose revenue comes from an annual transfer of Alaska Permanent Fund earnings; and about 30% generally comes from oil.

The Permanent Fund is set to transfer almost $4 billion for state spending in the next fiscal year, up from $3.8 billion in the current fiscal year.

Dunleavy did not hold a news conference to answer questions on Dec. 11, but members of his administration said he intends to unveil his long-term plan in January.

Sitka Sen. Bert Stedman, a Republican who co-chairs the Senate Finance Committee, said he’s skeptical Dunleavy could push through a fiscal plan in his last year in office.

“Quite frankly, he’s out of time,” Stedman said in an interview with Alaska Public Media.

He said there’s not much left to cut when it comes to state services. Plus, the senator, now in his 23rd year, said the governor’s decision to again propose spending more than half the state’s savings on large Permanent Fund dividends is unwise with oil prices stubbornly low.

“If we would have followed his plan, after this year, we’d be completely broke,” Stedman said. “It’s not acceptable.”

The senator told Alaska Public Media that he’d like to see a balanced budget, not a draw from savings. He said he does not want to see a PFD smaller than this year’s $1,000 payout — but low oil prices will make that difficult to achieve.

“We’ve got to make payroll,” Stedman said.

The governor’s $7.75 billion draft budget for state dollars is similar to what he proposed last year. His proposal also includes almost $300 million in supplemental spending to cover additional expenses in the current year’s budget. That money, too, would come from the Budget Reserve Fund.

On Dec. 11, some legislators said they were skeptical but hopeful that 2026 might bring a different result to the perennial debates over how to balance the state budget in the long term.

“It’s probably doubtful,” Sen. Mike Cronk, R-Tok and a member of the Senate Finance Committee, told the Alaska Beacon. “But I’m going to stay on the hopeful side, because I know that’s really where we need to be. I’m always going to think that other people will finally say, ‘enough’s enough.’”

In all but one year during his time in office, Dunleavy has proposed a dividend paid under a disregarded but still-on-the-books formula that dates from the 1980s.

Lawmakers since 2016 have used a portion of the Permanent Fund earnings to cover the cost of state services as oil revenue — once the primary funder of the state budget — has dwindled.

In 2017, the Alaska Supreme Court ruled that lawmakers may ignore that 1980s’ PFD formula because it is not in the state Constitution. Since then, legislators have typically reduced the dividend to what is payable without spending from savings.

The Alaska Department of Revenue is forecasting lower oil revenue due to a declining price forecast. The state Department of Natural Resources expects higher oil production in fiscal year 2027, but not enough to fully offset lower prices.

Alaska’s general-purpose revenue is closely tied to the price of oil. The Department of Revenue now projects that North Slope oil prices will average $65.48 a barrel for the current fiscal year, below the $68 projection in March. Production is expected to average 457,000 barrels per day, below the 466,800-barrel-a-day projection in March.

In the 2027 fiscal year that starts July 1, the department projects oil will average $62 a barrel.

The world is facing an oversupply of crude, holding down prices.

Taking money from savings to cover the budget deficit, as proposed by the governor, requires three-quarters of the House and three-quarters of the Senate to agree.

Sen. Lyman Hoffman, D-Bethel and co-chair of the Senate Finance Committee, said on Dec. 11 that the Senate Majority’s position is that the reserve should never be used for recurring expenses, according to the Alaska Beacon.

One-time expenses, like refilling the disaster response fund and the higher education investment fund, could be acceptable, he said.