One of the primary challenges in Alaska’s fiscal discourse is convincing stakeholders to see the broader fiscal picture rather than dissect individual components in isolation.
As conversations frequently veer toward specific issues—such as spending levels, K-12 education funding, oil taxes, or the Permanent Fund Dividend (PFD)—the deeper context often gets lost among the details of each topic.
The current debates surrounding K-12 spending serve as a pertinent illustration of this issue.
Many advocates for increased K-12 funding prioritize spending levels without considering the overarching circumstances related to total spending and revenue.
This narrow focus obscures the reality that while overall spending has been on the rise, current law revenues have consistently fallen short, with projections indicating a worsening gap over the next decade.
Thus, essential discussions often overlook critical questions regarding the potential deferral of other expenditures to accommodate K-12 funding increases or the means of financing these enhancements.
Many stakeholders believe that raising K-12 spending is a non-negotiable priority, oblivious to the broader implications for other areas that might face deeper cuts as a result.
To facilitate a comprehensive understanding of Alaska’s fiscal situation, it is vital to highlight significant aspects of the larger fiscal landscape.
This week, we explore key elements of this overall forest to provide context for those engaged in discussions about the individual trees of budget matters.
A comparison chart illustrating unrestricted general fund (UGF) spending against UGF revenues, excluding PFDs, serves as a starting point for this analysis.
Such exclusion makes sense, given that current law designates revenue for PFDs specifically, classifying it as “Designated general funds,” per the standards of the Legislature’s Legislative Finance Division (LegFin).
Consequently, both revenue and spending figures for the analysis omit PFD amounts.
The chart’s FY2019 baseline is significant, given that it marked the onset of utilizing statutory percent of market value (POMV) draws from the Permanent Fund’s earnings reserve to fund spending.
This gives a more accurate representation of historical fiscal trends, as earlier years’ revenues would yield skewed results in comparisons.
FY2019 also represents the first fiscal year in which the Dunleavy administration influenced budgetary decisions, providing a relevant frame for evaluating recent fiscal trajectories.
For those unacquainted with Alaska’s financial history, the chart is striking.
It illustrates that UGF spending (represented in gold) has consistently exceeded UGF revenues (represented in green) from FY2019 through FY2026, even when accounting for POMV draws intended to support government services.
The results indicate that even with a cap on future spending growth aligned with inflation, spending is set to continually outpace revenues well beyond the current projection period.
Additionally, the chart indicates that a segment of the PFD has been diverted, as termed by University of Alaska-Anchorage’s Institute of Social and Economic Research (ISER) Professor Matthew Berman as being “taxed,” in various fiscal years to cover UGF expenditures.
This diversion is likely to remain a feature of fiscal discussions going forward, particularly in the absence of additional revenue streams, even if spending growth is restrained to match inflation.
As no statutory framework governs the basis for these diversions, their levels inevitably fluctuate based on annual appropriations decisions.
Another visual aid provided illustrates that operating budget trends primarily dictate spending levels (shown in blue).
While spending remained relatively stable between FY2019 and FY2022, recent years have witnessed an annual compound growth rate exceeding 4% within the operating budget—a trend that, if it persists beyond FY2026, would exacerbate the projected imbalance between spending and revenue.
Unlike spending, revenue movements are more tied to oil royalties and tax revenues, as well as POMV draws, and they do not consistently correlate with inflation.
This trend is corroborated by another chart that depicts variations in revenue levels, highlighting the way temporary spikes in oil revenues can cause corresponding surges in overall revenue (illustrated by the green dashed line).
However, any net fiscal benefits from these spikes are often neutralized by simultaneous increases in spending levels, leaving the state without lasting fiscal gains.
Furthermore, although some increase in POMV draws and oil revenues is anticipated toward the latter part of the forecast period, the projections indicate that overall revenues are likely to remain significantly lower than those seen in the recent past (FY2022 through FY2024).
The projections demonstrate that a persistent fiscal gap is anticipated for the majority of the decade long forecast.
Reviewing spending and revenue over time, compared to a base year of FY2024, clarifies the fiscal landscape further.
Overall spending (depicted by the blue line) is on a trajectory of growth, while overall revenues are set to decline post-FY2024, not rebounding to FY2024 levels until much later.
Although revenue from the POMV draw allocated for government (indicated in gold) is projected to rise through the forecast, oil revenue projections signal a steep decline and sustained low performance that negatively impacts total revenue bases.
The analysis emphasizes that from a broader perspective, proponents of increased spending for K-12 or any other focus without parallel considerations are not fully embracing fiscal responsibility.
Isolated initiatives to boost expenditures or reduce PFD reductions only deepen the existing deficits plaguing the state.
It is vital for advocates on either side of the fiscal debate to recognize the necessity for simultaneous discussions surrounding compensatory revenue enhancements or meaningful spending cuts elsewhere to fund their recommendations responsibly.
Navigating Alaska’s fiscal future requires a holistic perspective and understanding of interconnected facets of revenue and spending, urging stakeholders to look at the full fiscal landscape.
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