Reopening of a federal grant program could reduce, but not eliminate, a cash squeeze at the Alaska Marine Highway System this summer.

The monthslong delay in the program jeopardized the ferry system’s operating budget for this year. But even with the grant program reopening, the Marine Highway will need state funds to cover for the missing federal funds until the anticipated grant comes through.

Fear of a shutdown arose earlier this year after Alaska Department of Transportation officials said the ferry system was $77.9 million short of its budgeted needs for 2026 because of the delayed federal funds, which represented nearly half the system’s annual operating budget.

Based on prior years, applications for 2026 federal ferry grants were expected to open mid-2025. But 2025 came and went, and no application period ever opened. That left the ferry system with only enough money to operate through July, Department of Transportation budget manager Dom Pannone told state lawmakers this spring.

The ferry system’s reliance on federal funding has been the norm since the 2021 Infrastructure Investment and Jobs Act created a billion-dollar pot of rural ferry funding —credited to Sen. Lisa Murkowski.

The vast majority of the millions released so far have gone to Alaska ferries, including roughly $150 million in operating funds for day-to-day costs like paying staff and keeping ferries fueled. A few hundred million dollars more went to ships and terminal improvements, mostly for construction of a new vessel to replace the 61-year-old Tustumena which is used on the cross-gulf run.

On April 6, the Federal Transportation Administration announced the grant program was reopening. The state will have to apply for the funds, and will not know until late this summer how large its share will be, but the size of the total funding pot is comparable to, even slightly larger than past years.

Funding is expected to be awarded by September, Pannone told lawmakers.

The ferry system expects to exhaust its existing operating funds in July. That would likely require the state to cover an increased share of expenses until then, after which federal funds could essentially pay the state back.

In her annual address to the state Legislature last month, Murkowski criticized the Dunleavy administration, calling the use of the funds on operating costs, rather than long-term investments, a “bad idea.”

“Federal funding is a lifeline, not an entitlement,” Murkowski said.

In the seven years before the Biden-era federal funding infusion, essentially all of the ferry system’s operating funds came from ticket revenue and state funds, according to marine highway numbers.

But as federal funding has increased, the governor cut the state’s share. When the ferry grant program expires, absent a new stream of federal assistance, the state will have to either increase spending or make cuts.