Senate passes largest* budget in state history, relying on high oil prices and draw on savings

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There’s a lot of ways to judge the size of the state budget.

Do we include the dividend, do we talk only about how much undesignated general fund dollars it spends, or do we roll in all the federal dollars? Well, by just about every one of those metrics, the budget passed out of the Senate on Tuesday is at the top or near the top of every one of those categories.

When you roll together the windfall of federal dollars through the covid relief bills and the federal infrastructure bill, it sits at the top of the list with a whopping $19 billion spend. When you look at the amount of undesignated general fund dollars it spends—which is how I’ve typically looked at budgets as it gives us a better look at what the state is bringing in and spending on its own—the budget sits at fifth largest when adjusting for inflation.

With a big dividend and plenty of capital project spending to go around—including $280 million added on Tuesday to pay for the Port of Nome, the Port of Alaska (in Anchorage) and Mat-Su road projects—gone are any attempts to put money away into savings for future years or any future funding for K-12 education. The legislation still maintains a “spending limit” of sorts with provisions that direct any oil revenue north of $100/barrel to be deposited into the constitutionally protected corpus of the Alaska Permanent Fund, which at least means future draws might be a bit bigger. What that means, though, is that the Senate’s budget has a roughly $970 million deficit in it—despite the high oil prices and federal windfall—that needs to be filled from savings.

The Senate’s lead budgeters warned that such a budget puts the state in an incredibly precarious position where any downward pressure on oil prices could spell disaster. Sen. Stedman noted that if oil drops to about $94/barrel, it will deplete the state’s statutory budget reserve and if drops down in to the $70 range, it will also erase the state’s constitutional budget reserve and leave no other recourse than overdrawing the Alaska Permanent Fund.

“I can’t call myself a good steward of Alaskans’ money if we’re drawing on savings at 100 bucks a barrel,” said Juneau Democratic Sen. Jesse Kiehl.

Conservative senators who’ve been diehard supporters of a larger PFD brushed off concerns that the budget would decimate the state’s financial position, arguing that it’s just a one-time (election year) budget, that the state still has plenty of money in the Alaska Permanent Fund and that everyone else hasn’t been following the rules on the dividend so why follow any rules to limit spending? There were few efforts to curb spending and most pitting the dividend against K-12 education funding, fisheries research or other social safety net spending. Even if any of them had been accepted, it would have amounted to just a fraction of a fraction of spending.

Sen. Mike Shower, R-Wasilla, led the charge on the overspending, arguing that it would put the state onto stable footing well into the future: “If not now, then when?”

The changes on the Senate floor, in total, are massive. Sen. Stedman says the changes on the floor—which include the large dividend, the energy rebate, capital project spending that’s varied from roads and ports to high school diving boards—have seen the budget swing from a $1.2 billion in savings to roughly $1 billion in deficit spending. Sen. Natasha von Imhof, R-Anchorage, warned that the spending would march the state toward an income tax, deep cuts to state services and overdraws from the Alaska Permanent Fund.

“What good does a high dividend do if we don’t have also a balanced budget. There are consequences with the choices made today on this floor and yesterday. The choice to liquidate the treasury on a hope and a prayer that oil prices remain high has consequences. … Trading a high dividend of billions of dollars means other things are not funded. The irony is that this is one of the collective highest budgets in history, I checked during our break, and is supported by so-called ‘fiscal conservatives,’” she said. “I speak for Alaskans today who think beyond the next election cycle. I will not be supporting of this defective budget.”

Stedman said he hopes the best for future legislators.

“God bless ‘em,” he said, “and I hope they can increase the savings and keep the state moving forward and not put us in a position where we start liquidating the permanent fund.”

The budget now heads to the House for a concurrence vote. Senators are expecting the House to reject the budget, sending it to a conference committee to hash out the differences, but there’s concerns that the House may simply concur with the budget, effectively leaving any further change sup to Gov. Mike Dunleavy and his veto pen.

Follow the thread: Senate wraps up amendments and passes the budget.