Governor's spending plan would produce a deficit

The Alaska Legislature gaveled into session last week. The Legislature’s main duty is creating and passing a budget for the state. To do this, we start by considering last year’s budget and the budget proposed by the governor. I’d like to tell you a bit about the governor’s proposed budget for this upcoming year, Fiscal Year 2023, which starts July 1.

The governor is proposing a budget about $80 million more than last year’s budget, or a 2% increase, which is in line with the original assumption for inflation. Inflation rates have jumped much higher than previous years, but the governor’s proposal is not too dissimilar from last year’s budget.

This is the first time during this governor’s tenure that he has included full funding of school bond debt reimbursement. Most legislators are supportive of full funding for school bond debt, so I am hopeful this proposal will move forward. Passing full funding of school bond debt reimbursement would make it less likely that local government bodies will have to increase taxes.

The biggest difference between last year’s budget and the governor’s proposed budget is his 50/50 plan to use 50% of the POMV (percent of market value) annual draw from the Permanent Fund for dividends and 50% to state services. The state’s nonpartisan Legislative Finance Division modeled the 50/50 plan and found that it resulted in $300 million to $500 million in deficits per year over the next decade, unless other policy changes are implemented.

Last year, the governor’s 50/50 plan would have resulted in a nearly $2 billion deficit — much larger than the deficit proposed this year. The reason we are able to discuss this year’s budget without looking at more severe cuts is because our revenue is higher than expected. With a strong investment performance from the Permanent Fund, higher oil prices, and one-time federal funds for COVID relief and the bipartisan infrastructure bill, the Department of Revenue forecasts $1 billion more in unrestricted general fund for the current fiscal year and $800 million more in Fiscal Year 2023.

To avoid bigger deficits in the future, we would need strong investments, high oil prices, and federal funds to continue at the level of this past year, which is unlikely.

Now it is time for the Legislature to evaluate budget changes and proposals.

Constituents can always call my office at 907-465-3824, or email me at Rep.Dan.Ortiz@AKLeg.gov.

Rep. Dan Ortiz