JUNEAU — The Alaska Senate is proposing significant budget cuts amid a projected fiscal shortfall exceeding $85 million in its draft spending plan for the upcoming fiscal year starting July 1.
On Thursday, the Senate Finance Committee unveiled its latest budget version, which includes a Permanent Fund dividend of roughly $1,400 and a $172 million increase in school funding, aligning closely with last year’s appropriation for education.
The legislators are grappling with a challenging financial landscape, primarily due to declining oil revenues, leading to a deficit of over $680 million across two fiscal years at current spending levels.
Lawmakers assert they have limited options to address this fiscal gap, with the Democrat-dominated Senate minority leadership opposing the use of savings to bridge the deficit.
Instead, Senators are advocating for new revenue streams, including oil tax increases, designed to help balance the budget; however, these proposals have gained little traction in the House.
In March, Bethel Democratic Senator Lyman Hoffman, who oversees the Senate’s operating budget, advised his colleagues to seek cuts and refrain from funding new initiatives.
Hoffman also indicated that the Senate intends to disregard new baseline budget additions suggested by Governor Mike Dunleavy, with the exception of Medicaid spending.
In fact, Senate subcommittees turned down over $60 million in funding requests submitted by the Dunleavy administration, according to Hoffman’s office.
The Senate’s proposal aims for over $100 million in reductions across various agencies, reflecting a considerable shift from Dunleavy’s original budget.
Notably, the Alaska Department of Corrections is set to face approximately $32 million in cuts, which includes a $7.5 million reduction aimed at closing a housing unit within the Spring Creek Correctional Center.
In addition, the Alaska Permanent Fund Corporation will see cuts nearing $18 million, with senators calling for a 10% reduction in non-investment staffing.
The Alaska Department of Health is expected to incur a $14 million reduction, incorporating a $4 million cut from a newly established virtual call center meant to distribute state benefits to Alaskans.
Moreover, the Alaska Department of Public Safety is slated for a nearly $12 million budget cut, which notably includes the dismissal of Dunleavy’s proposal to reopen a Talkeetna Alaska State Troopers post, along with additional Village Public Safety Officers in Arctic regions.
The University of Alaska will experience around a $10 million cut, primarily through the rejection of salary increases outside of current labor contracts, while almost $8 million will be trimmed from the Alaska Department of Transportation and Public Facilities, largely due to a slowed replacement schedule for state vehicles.
Jason Brune, chair of the Permanent Fund’s board, expressed concerns regarding potential negative impacts these budget cuts may have on the corporation’s capacity to maximize its investment value.
Despite these concerns, Brune acknowledged the ongoing budget process and the possibility for collaboration with the Legislature to ensure that necessary funding is available for investment management efforts.
In addition to larger cuts, the Senate is also considering smaller budget reductions that may spark controversy.
Last year, lawmakers contemplated defunding the Alaska Gasline Development Corporation (AGDC) unless it could secure financing for a long-desired gas pipeline project.
This year, the Senate plans to reduce the AGDC’s budget by $2.5 million, with intentions that the agency be primarily financed through private sources.
Frank Richards, the president of AGDC, informed lawmakers that if this proposed cut goes through, the agency will face challenges in effectively representing the state’s interests in the proposed pipeline, given its limited resources.
During the budget process, Senate members acknowledged the difficult decisions necessary for achieving fiscal balance.
Juneau Democratic Senator Jesse Kiehl, a Senate Finance Committee member, warned earlier this month that despite the ‘austere’ budget, a considerable fiscal shortfall remains.
The Senate’s draft budget includes the same $1,400 Permanent Fund dividend proposed by the House; however, it contrasts markedly with the House’s earlier budget approval.
The House’s budget retained most of Dunleavy’s requests and included additional spending from legislators, with an anticipated $259 million deficit for the next fiscal year despite Republican criticism that the Democrat-majority did not cut enough.
Additionally, the House set aside a one-time $253 million school funding boost, intended as a buffer should a permanent increase of $1,000 per student not materialize this year.
The Legislature recently failed to override Dunleavy’s veto of a proposed $1,000 Base Student Allocation increase.
In contrast, the Senate’s draft budget proposes a $172 million one-time school funding increase that closely mirrors the funding hike approved last year.
The Senate also rejected a proposed unallocated $79 million cut to the budget enacted by the House that would have authorized Dunleavy to reduce the budget across various departments at his discretion, a move legislators’ attorneys cautioned may be unconstitutional.
Earlier this month, the Senate also advanced a simplified capital budget, which funds infrastructure and maintenance projects, that seeks $120 million less than Dunleavy’s proposed capital budget.
Regardless of the planned budget cuts, an estimated $85 million projected deficit persists for the upcoming fiscal year, which could further expand as labor contracts are settled with state agencies, legislators have indicated.
As the Senate Finance Committee meeting concluded, Hoffman emphasized that substantial work remains to adequately balance the budget.
He noted, “We are still in deficit mode.”
The regular legislative session is mandated to conclude by midnight on May 21.
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