Assembly receives state revenue update

PALMER — The Mat-Su Borough Assembly heard a presentation from Office of Management and Budget Director Neil Steininger at the Assembly meeting on Tuesday with recently released revenue projections that indicate an increase in oil production.

The Assembly had a planning session on Feb. 27 and asked Manager Mike Brown to provide an update on state revenue projections. Steininger presented for 20 minutes and began with a history of how the state’s budget has plateaued at around $4.5 billion after over $16 billion in budget reserves had been spent.

“The most recent update to state revenue released late yesterday and the Department of Revenue has been discussing with the finance committees at the legislature brought up our revenue projections by about $450 million from where we were projecting in the fall of last year and what we used to build our fy 22 budget proposal that we put forward in December,” said Steininger.

The revenue update released on March 15 details that the state has approximately $4.7 billion in available revenue, with only $1.7 billion coming from traditional sources of revenue such as oil production, which Steininger noted was a significant increase in both the price of oil and production of oil from what was anticipated. Over $3 billion would be from the Percent of Market Value structured draw on state savings. After a payout of Permanent Fund Dividends expected to cost around $2 billion, the state budget has a deficit of at least $1.6 billion.

“While that’s still a problem there in terms of that structural deficit, it still is good news that we got today. It’s definitely a positive thing to see some rebound in those traditional revenue sources, but when you look at the top half of the section you can see traditional revenue sources don’t really make up the lion’s share of the state’s revenue any more. We’re really now more reliant on that POMV draw, that structured draw from state savings that gives us that stability that really helps planning purposes for the state budget,” said Steininger.

Steininger also noted that the Permanent Fund Earnings Reserve had a good year, but should only be looked as an account of last resort. Steininger also described the major sectors that receive the state Unrestricted General Fund Revenue. Medicaid is at $610 million with an increase of $43.7 million in the last 10 years. K-12 education stands at $1,246.7 million with a $72.2 million increase over the last decade, and the state pays $342 million in UGF funds to retirement assistance, which has increased 155 percent over the last five years. With a decrease of 1,319 state positions, payroll at $812 million has only increased $900,000 in the last 10 years. Steininger discussed how over $16 billion in savings had been spent down, and where the Constitutional Budget Reserve sits now.

“That $1.3 billion is better than we expected but really that’s not at the level of budget that the state has and the structural deficit that we’re looking at, that’s not really enough money to continue to rely on so the CBR, for our purposes is not really a source of money that we know we can continue to go to to keep kind of kicking that structural problem down the road,” said Steininger.

Assemblywoman Stephanie Nowers lead the questioning by asking about the portion of CARES act funding reflected in the budget, and discussed the POMV draw required for PFD payments, expected at eight percent, which Steininger confirmed.

“That additional draw in FY 22 really we’re proposing as a one year action, really not a sustainable long term solution to that problem and that’s why one of the constitutional amendments that we put forward is very important. It allows for the kind of locking up of that earnings reserve into the corpus of the permanent fund and prevents any sustained excess draws on the fund and that over time will help ensure that value going forward and kind of ensure that rigor to that five percent draw,” said Steininger.

Mayor Vern Halter asked about the distribution of the American Recovery Plan funds. Steininger said that over $1 billion in ARP funds were headed to Alaska, but the OMB was still discussing with Federal agencies how to interpret the guidance on funds. While over $1 billion will be distributed to the state, hundreds of millions of dollars will be doled out to communities. Steininger said that the Department of Transportation and Department of Education could expect to see large fund availability, and the deadline would not be until the end of 2024.