JUNEAU — The Alaska Senate is eyeing over $100 million in budget cuts, but a more than $85 million shortfall remains in the Senate’s draft spending plan.
The Senate Finance Committee on Thursday unveiled its new version of the budget for the fiscal year that starts July 1. The spending plan has a roughly $1,400 Permanent Fund dividend, and plans to pay a $172 million increase in school funding, closely matching what was appropriated last year for schools.
Legislators are grappling this year with a dire fiscal outlook due to diminished oil revenue. The Legislature is facing a $680 million-plus deficit over two fiscal years based on status quo spending.
Lawmakers say they have few good options to balance the budget.
Leadership of the Democrat-dominated Senate majority has opposed drawing from savings to fill the projected deficit for the next fiscal year. Senators have instead introduced new revenue measures, including oil tax hikes, to balance the budget. But the House has shown little interest in those proposals.
Bethel Democratic Sen. Lyman Hoffman, who manages the Senate’s operating budget, sent a memorandum to senators in March directing them to look for cuts and not to fund new programs.
Additionally, Hoffman said that the Senate should reject additions to the baseline budget proposed by Gov. Mike Dunleavy, except for Medicaid spending. Over $60 million in requests from the Dunleavy administration were rejected by Senate subcommittees, Hoffman’s staff said Thursday.
The Senate is calling for over $100 million in agency reductions in its draft budget:
• After years of increases, the Alaska Department of Corrections would see an almost $32 million cut from the spending plan proposed by the Dunleavy administration for the agency. Reductions include a $7.5 million cut to Spring Creek Correctional Center, with the intention to close a housing unit.
• Almost $18 million would be cut from the Alaska Permanent Fund Corp. The fund provides over 50% of state revenue each year. Senators are calling for a 10% reduction in staff not involved in making investment decisions for the fund.
• The Alaska Department of Health would see a $14 million cut, including $4 million cut from a new virtual call center used to pay Alaskans state benefits.
• The Alaska Department of Public Safety would see an almost $12 million budget cut. Dunleavy had proposed reopening an Alaska State Troopers post in Talkeetna, but that was rejected in the Senate’s draft budget along with additional Village Public Safety Officers in the Arctic.
• The University of Alaska would see an almost $10 million cut, largely from rejecting salary increases that are not part of labor agreements. Almost $8 million would be cut from the Alaska Department of Transportation and Public Facilities, largely by not replacing state vehicles as quickly as planned.
Jason Brune, chair of the Permanent Fund’s board, said trustees are concerned the proposed budget reductions could impact the corporation’s ability to “maximize” the value of its investments. But Brune said trustees recognize the budget process is ongoing.
“There is an opportunity to work together with the Legislature to ensure that optimal funding is available for the investment management work we do for the Permanent Fund and the other funds entrusted to our care,” he said.
Additionally, the Senate is looking to make smaller budget reductions that could prove contentious.
Last year, the Legislature voted to defund the Alaska Gasline Development Corp. unless it secured financing for a long-sought gas pipeline. This year, the Senate is planning to cut $2.5 million from the Alaska Gasline Development Corp.’s budget with plans that the agency be largely funded by private sources.
Frank Richards, president of the AGDC, told lawmakers on Wednesday that if that cut is approved, the agency would continue representing the state’s interests in the planned pipeline with “very few assets.”
“It would make it a challenge to be able to perform the functions to properly act as a minority owner in a major, significant project development,” he said.
Senators report making tough budget decisions during the subcommittee process.
Juneau Democratic Sen. Jesse Kiehl, a member of the Senate Finance Committee, warned earlier in the month that the Senate’s “austere” budget would still see a sizable fiscal shortfall.
The Senate’s draft budget has the same $1,400 Permanent Fund dividend as the House. But in general, the Senate’s current spending plan is markedly different from the budget approved by the House earlier in the month.
The House’s operating budget advanced with most of Dunleavy’s budget requests intact, along with spending added by legislators. The House’s budget advanced with a projected $259 million deficit for the next fiscal year as Republican minority members complained that the Democrat-dominated House majority had done enough to cut the budget.
The House included a one-time, $253 million school funding increase in case a permanent $1,000 boost in per-student spending is not approved this year. The Legislature on Tuesday failed to override Dunleavy’s veto of a $1,000 Base Student Allocation increase.
The Senate’s draft budget contains a $172 million one-time school funding increase. That would roughly match the same school funding boost the Legislature approved last year.
Additionally, the Senate rejected an unallocated $79 million cut to the budget approved by the House. That would have directed Dunleavy to reduce the budget from wherever he chooses. But the Legislature’s attorneys warned that move would likely be unconstitutional.
Earlier in the month, the Senate advanced a stripped-down capital budget. The spending plan, which funds infrastructure and maintenance projects, would draw $120 million less from the state treasury than the capital budget proposed by Dunleavy.
Despite the Senate’s planned budget reductions, a more than $85 million projected deficit remains for the next fiscal year. That could balloon as labor agreements are finalized with state agencies, lawmakers said.
Hoffman concluded Thursday’s Senate Finance Committee meeting by telling members that “there still has to be work that needs to be done on this budget in order to have it balanced.”
“We are still in deficit mode,” he added.
The regular legislative session must end by midnight of May 21.
