Legislators in Juneau struggling to fill big budget gap

State legislators in Juneau are struggling with how to fill huge budget deficits that could approach three quarters of a billion dollars between the current fiscal year, FY 2025 and the fiscal year beginning July 1, FY 2026.

Part of the budget balancing act is on what can be afforded for a Permanent Fund Dividend this year.

Gov. Mike Dunleavy feels the deficit, whatever it turns out to be, can be funded from the state’s Constitutional Budget Reserve, or CBR. The reserve, the state’s main savings account, holds about $3 billion.

Many legislators oppose that, arguing the savings should be kept on hand in case of an emergency. Some are proposing new revenues.

One new revenue bill likely to move soon in the state Senate is a new tax on oil companies. It was originally sponsored by Mat-Su Republican Sen. Robert Yundt but it now being led by the Senate Resources Committee, chaired by Sen. Cathy Giessel, R-Anch., who is also Senate Majority Leader.

Sen. Robert Myers, R-North Pole, a member or the Senate’s Republican-led Minority, said he is frustrated by continued growth in the budget and the state’s seeming inability to constrain spending.

“We’ve got to get a handle on our spending,” Myers said in a briefing by Senate Republicans last week. “Any one piece of spending is easily justifiable, whether it’s education, whether it’s Medicaid, infrastructure, or capital projects. It is the aggregate that is overburdening us.”

Myers said state government does not financially plan for the long-term. “We are going to have to start prioritizing our spending based on the results in the rest of the economy – not just prioritizing our spending based on what is popular politically at the time.”

Myers highlighted Alaska's decline in the number of jobs since 2012 (Alaska currently ranks 37th in the country for employment growth) and the need to adopt state policies that stimulate the economy.

Yundt (R-Wasilla) said what the Legislature does in Juneau affects the state’s economy in complex ways. Budget growth in programs that do not drive economic growth crowds out money for programs that so, such as in workforce development and housing.

Yundt draws on experience as a business owner and the limitations of opening a business in Alaska. He emphasized how different facets of life contribute to creating an economy.

“When business owners are looking at investing and spending money in an economy, one aspect they look at more than anything is what kind of employees they can hire. We need to attract talent, and you cannot attract talent if you do not have affordable housing, good education systems, and a business environment with opportunity for growth,” Yundt said at the briefing.

“Labor is impacted by the price of housing, food, and energy. When those necessities are not affordable it drives people out of the state,” he said.

Everyday Alaskans in the private sector drive our state forward, and our decisions in the legislature need to reflect that, the Senate’s Republican Minority said in a statement.

However, there are huge demands on legislators this spring for more money for schools, for the prison system, state ferries, pay raises to offset inflation under labor contracts with state workers and the rising cost of medical benefits for state workers and retirees.

Factors beyond Alaskans’ control can also undercut efforts to contain budgets. Gov. Mike Dunleavy’s proposal for the upcoming FY 2026 budget showed a small surplus in the current FY 2025 but by late February falling oil prices, and revenue, turned the surplus into an $80 million deficit.

At the same time the governor had to propose an additional $112 million supplement for the FY 2025 budget to provide funds for an expected heavy fire season this spring and summer and to put more money into the state’s emergency disaster relief fund to deal with emergencies from floods or wind storms.

The added $112 million in supplemental funds and the estimated $80 million deficit combine to push the total expected FY 2025 current year deficit to $192 million.

Meanwhile, the Legislature is still working on the upcoming FY 2026 budget, and a $600 million deficit is possible for the new year due to continued state agency and program cost increases and lower oil revenues.

Legislators will have to find a way to plug these holes this spring because the state is legally required to have a balanced budget by June 30, the start of the new fiscal year, not only for FY 2026 but also the current FY 2025 as well.

The oil tax bill, if it passes and is allowed by the governor, who opposes all taxes, will bring in about $200 million. To fund a budget gap of $700 million for the two years it means legislators will have to find $500 million or simply take it out of savings.

Having no money means it isn’t fun to be in Juneau this spring. New, talented young legislators like Mat-Su’s new House members, Republican Reps. Elexie Moore and Jubilee Underwood, both of Wasilla, and even Yudht, who is new to the Senate this year, might understandably feel hemmed in on what they might accomplish this spring.

Even relatively minor changes in programs, if they cost any money, which most program changes do, will tough scrutiny in the Legislature’s finance committees.

Meanwhile, legislators are dealing with other major issues this spring including regulation of Pharmacy Benefits Managers and changes in how health insurance companies make pre-approvals for payment on recommended procedures.

Legislation on both topics were before legislators last year. Changes in regulation of Pharmacy Benefits Managers to help small, independent pharmacies was partly done last year. Bills introduced this year attempt to finish up what didn’t get done last year.

The pre-approval bill is in response to consumers’ complaints delay and denials of approval for payments. The bill last year bogged down over technical issues. Those are said to be resolved this year, so the legislation may have easier going.