On Friday, the Alaska Senate’s finance committee finished work on a draft state operating budget for the coming year and sent the draft ahead to a vote of the full Senate.
Senators is scheduled to begin debating amendments on Monday, with a vote on the draft expected later in the week.
The committee’s draft is $384 million less than a version passed by the House in April and $1.7 billion less than Gov. Mike Dunleavy’s proposal for the fiscal year that starts July 1 and runs through June 30, 2026.
Most of the cuts came from the 2025 Permanent Fund dividend. Dunleavy proposed a payout of about $3,900 per recipient, and the House reduced that to about $1,400. The Senate’s latest draft has it at $1,000.
The budget arrived in the finance committee with a substantial deficit, and it leaves with a surplus of between $100 million and $200 million, using only numbers in various budget bill drafts to date.
That surplus is almost certainly an illusion, the committee’s two leading members warned.
Sens. Lyman Hoffman, D-Bethel, and Bert Stedman, R-Sitka, said that lawmakers next year are likely to face a significant deficit, somewhere between $300 million and $600 million at current estimates.
“We argue that this is sort of a transitional budget, getting prepared for the headwinds that we’re going to face,” Hoffman said.
The upcoming budget is based on a state forecast from March that predicts North Slope oil prices will average $68 per barrel in the coming fiscal year. Since that forecast was released, futures markets have plummeted, so much so that the Department of Revenue later approached the co-chairs with concerns, Hoffman said. When spending exceeds revenue, lawmakers must make up for it with a supplemental budget bill in the next legislative session.
“It may be as low as $64, which will mean a potential supplemental (bill), if that’s the case, of an additional $150 million, estimated,” Hoffman said.
On top of that are several large union contracts that remain under negotiation. Pay and benefit increases are expected after a salary survey found significant numbers of state employees are underpaid.
“They may be between $100 million and $300 million,” Hoffman said.
Then add the federal government programs cut because of DOGE, Hoffman said. That White House office has been slashing federal programs and spending. If the state were to lose 5% of its federal funding, keeping programs alive would cost as much as $300 million.
Then there’s fire season to consider, he added.
“If it’s higher than an average year, which may happen, we could see a substantial hit on the state’s coffers. So you know, I and others in the Senate are concerned,” Hoffman said.
He added that there’s yet another area of concern.
“We’re using north of $100 million in one-time funds in this year’s budget that aren’t going to be available next year,” Hoffman said. “So that is why we may have a gap of between $300 million and $600 million next year.”
Legislators have removed the possibility of closing the budget gap with new revenue — opposed by some key House members — or spending from savings, opposed by Senate leaders who say it wouldn’t be sustainable.
Stedman referred to the temporary budget surplus as a “buffer” that likely would be consumed by expected cost increases. “We’re a little cautious,” Stedman said.
Some of that buffer could be consumed later this year as members of the House negotiate with the Senate on a budget compromise that integrates parts of the Senate and House drafts.
Stedman said he hopes there will be few items added back into the budget.
“The fact of the matter is,” Hoffman said, “at some point, the message needs to be that we can’t continue as we are.”