Legislature’s budget work proceeds smoothly so far; Differences in PFD still to be reckoned with

The Legislature is moving along like clockwork in its work on the state budget. Last Thursday, April 25, the Senate Finance Committee voted its version of the state operating budget out of committee, setting the stage for an expected approval by the full 20-member Senate.

House Bill 268, developed earlier in the state House along with HB 270, the operating budget for state mental health programs, was sent to the Senate and after Senate approval both bills go back to the House with alterations.

A House-Senate budget conference committee will be appointed to negotiate differences between the two versions.

One major difference between the two is the House proposal for a $2,000-plus Permanent Fund Dividend, or PFD, and a smaller PFD of about $1,350 PFD in the Senate proposal. With the larger PFD the House budget has a deficit of $103 million, according to an analysis by the Legislative Finance Division, the Legislature’s nonpartisan financial analysis group. With the smaller PFD the Senate version is roughly in balance, according to the analysis.

The larger dividend proposed by the House could be paid but the amount of the deficit must be cut from either the operating budget, the state capital budget, or both, Alexei Painter, director of the finance division, told the Senate Finance Committee last Thursday.

By tradition the House begins work on the operating budget and sends it to the Senate, which alters it and sends it back. The operating budget pays for state agencies and programs along with pensions and debt service.

On the capital budget, in Senate Bill 187 this year, the process is reversed. The Senate starts the work and passes it to the House, which then makes changes. The capital budget is mostly for construction.

Both budget bills must be approved and signed by Gov. Mike Dunleavy by June 30, the last day of the fiscal year. If there is no approved budget by July 1 the state government cannot legally operate.

The legislative finance division has tallied the House version of the operating budget for Fiscal Year 2025, which begins July 1, at $4.98 billion, up from $4.77 billion in current FY 2024, which ends June 30. The House proposes to spend $1.1 billion on the PFD to be paid this fall, up from $881 for dividends in the current year budget.

The House is also proposing an additional $403 million for a supplemental “energy dividend” this year, essentially an additional PFD. This is on top of the regular dividend. The Senate proposes a lower amount for the energy dividend of $143 million.

The Senate has approved a capital budget of $255 million but the House is still working on its version of the capital plan. The assumption is that the House will add $100 million or so for capital projects.

The Senate is also allocating $203 million for additional budget items that are known but not yet in the budget. With all this taken into account, the Senate budget appears to have a small deficit of $6.5 million. In contrast, the House budget has $104 million deficit, assuming an amount for capital spending, for the analysis, equal to the Senate’s $255.9 million and $214 million reserved for the remaining but so far unbudgeted items.

Unbudgeted items include the cost of new legislation proposed in the House and Senate, some of it not yet passed, but based on bills passed so far this is estimated at $78 million, according to the Legislative Finance Division.

There are also pending salary adjustments for public employee union contracts still being finalized, which are roughly estimated at $26 million in additional costs. These could add a combined $104 million to the overall budget totals.