Governor proposes drawing down state savings to pay larger PFD

With a deep reduction in oil revenues expected, Alaska is on track for an almost $1 billion budget hole in the coming year that will have to be filled with money from savings, according to a spending plan presented Dec. 14 by Gov. Mike Dunleavy.

The governor described his budget for the year beginning next July 1 as “status quo” in most categories. “There’s no cuts in this budget,” he said during a news conference in Juneau.

There are a few targeted areas with increases, however, including more staff to help process a backlog of food stamp benefits and more money to hire village public safety officers.

The governor is not proposing any increase in the state funding-formula for K-12 schools. The formula has not changed in about seven years, and districts statewide, including Wrangell, are asking for more state help.

The anticipated $987 million deficit in the governor’s budget would be filled with money from two savings accounts, the Constitutional Budget Reserve and the Statutory Budget Reserve.

The governor’s spending plan, however, likely understates the looming deficit, said Sitka Sen. Bert Stedman, who co-chairs the Senate Finance Committee.

There are items missing in the governor’s budget, including some necessary capital items, meaning the final hole to be filled is likely more in the range of $1.3 billion to $1.5 billion, Stedman said in an interview. Lawmakers will face the challenge of balancing state spending with the necessity of preserving the Constitutional Budget Reserve and other savings accounts, he said.

“It’s unlikely,” Stedman said, that the Legislature will agree to drain almost half of the savings in the budget reserve fund, as proposed by the governor.

As in past years, Dunleavy included in his proposed budget a large Alaska Permanent Fund dividend based on a payout formula that has not been used in eight years.

Under that dividend formula, which has not been paid since 2015 when state revenues came up short, the fall 2024 PFD would be about $3,400, in contrast with the $1,312 that was paid out this year. But the state treasury lacks the funds to pay such a large dividend, prompting Dunleavy to propose taking money from reserves.

Stedman said there is virtually no chance the Legislature will agree to the large payout that Dunleavy’s budget proposes.

“On the statutory dividend, it still remains unaffordable. The math hasn’t changed,” Stedman said. “If we did it, we’d be out of money in two years, and the game would be over. Nobody would get a dividend.”

Dunleavy based much of his 2018 and 2022 winning election campaigns on the large PFD.

Meanwhile, the state’s revenue picture is dimmed by a significant decline in oil revenues, according to the official semiannual forecast released by the state in conjunction with release of the governor’s budget.

The state’s unrestricted oil revenues — money that is available for regular state appropriations — is expected to total $2.4 billion for the 12 months ending next June 30, down from $3.1 billion for the 12 months prior to that, according to the Department of Revenue forecast.

Total unrestricted oil revenues flowing into the state treasury in fiscal 2025, which comprises the period from July 1, 2024, to June 30, 2025, is expected to be even lower, at under $2.1 billion, according to the forecast.

That decline in revenues is tied to production that is lower than earlier projected, and declining global oil prices.

For the 12 months that ended last June 30, North Slope production averaged 479,400 barrels per day. Production is continuing to drop and is expected to average 470,300 barrels per day over the 12 months that will end next June 30. In fiscal 2025, which comprises the 12 months starting next July 1, output is expected to be even lower, averaging 463,800 barrels per day, according to the forecast.

North Slope production peaked at over 2 million barrels per day in 1988 but has declined as fields have aged.

Dunleavy acknowledged that the reduction in oil revenues puts the state in a difficult financial situation.

Permanent Fund earnings are the No. 2 source of state revenue, with oil at No. 3. The federal government is on track to contribute more than $6.27 billion to the state in the coming fiscal year, making it the No. 1 source of revenue in Dunleavy’s budget.

The governor’s proposed budget includes some targeted areas of increased spending for at least the short term.

One is public safety, where his budget is calling for money to hire more village public safety officers and buy a new airplane, along with a new patrol boat to be used in Southeast Alaska.

Another area where Dunleavy’s budget proposes some increased spending is transportation. He proposed $23 million in state funding to qualify for $92 million in federal aid toward building a new state ferry to replace the Tustumena, which serves Gulf of Alaska communities.

The budget also includes more funding for the Alaska Division of Public Assistance to cope with a severe backlog in reviewing applications for the Supplemental Nutrition Benefits Program. Thousands of Alaskans have been waiting months for their food stamp benefits.

The Alaska Beacon is an independent, donor-funded news organization. The Anchorage Daily News contributed to this report.


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