Declining revenues, rising costs contribute to massive shortfall BY TIM BRADNER IT HAS BEEN A TOUGH SPRING FOR STATE LEGISLATORS MEETING IN JUNEAU FOR THE 34TH LEGISLATURE SESSION. Revenues are down thanks mainly to dipping crude oil prices while expenses are up thanks to inflation, health care costs, supply chain issues and all the other headaches that private businesses are all too familiar with. Schools are strapped and have not seen increase in regular state funding since 2017, during which inflation has taken a big bite out of dollars the state has made available. There is money available, of course. The state’s $60 billion Permanent Fund now makes a major contribution to support the state budget through a percent-of market value formula, or POMV, similar to the way big endowments support their host institutions. The POMV has supported most of the budget in recent years, relieving taxpayers of this burden. The state’s main savings account, the Constitutional Budget Reserve, has about $2.8 billion available for emergencies and in the past the state has drawn on the CBR to cover deficits. Some want to do that again this year but partisan legislative politics can get in the way since a “super-majority” vote is required to tap the reserve. This means the Legislature’s minority party, which happens to be Republican this year, have a big stick to extract concessions from the majority, which this year happens to be coalitions of Democrats and moderate Republicans in both the House and Senate. Since the Legislature by law must pass a balanced budget by June 30, the end of the fiscal year, the majorities are under the gun to find the money to cover expenses, and if that means making withdrawals from the CBR, the minorities are in a powerful bargaining position. This is why the end of legislative sessions on the 121st-day legal limit can be so messy. Then there is the Permanent Fund Dividend, the payment sent every year to qualifying Alaskans, children included, from earnings of the Fund. For many years, when the Fund was smaller, the PFD was a modest payment for which many Alaskans were grateful in helping pay bills but not large enough to be a significant part of a family’s income. But now, as the Fund has grown, larger dividends are possible and elected officials including Gov. Mike Dunleavy have campaigned for reelection on promises of a large dividend. This year the governor has proposed a $2,500 PFD, which would create a major deficit. A draw on the CBR that would deplete about half of the reserve fund is proposed to pay for the large dividend. Few legislators think this is financially prudent. The House and Senate Finance Committees have wrestled with what might be affordable and those amounts range between a $1,000 PFD and a $1,400 PFD, but even the smaller dividends could leave deficits. It’s possible the PFD could be reduced further if there are still deficits. Some lawmakers call for new revenues but the only proposals are for new taxes on oil and gas companies and a tax on out-ofstate digital firms that do business in the state. Legislators must make decisions on these issues in the closing days of the 2025 session and they are not pleasant choices to make. LEGISLATURE'S TALL TASK ON BUDGET IN SPOTLIGHT Legislators in Juneau have been faced with many tall tasks, namely the state budget shortfall. 8 ALASKA RESOURCE REVIEW SPRING 2025 VOLUME 2 | ISSUE 2 | SPRING 2025
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