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Alaska Legislature

State revenue forecast projects a big budget deficit in 2021, even with $0 Permanent Fund dividend

JUNEAU — A grim new prediction from the Alaska Department of Revenue forecasts a budget deficit of several hundred million dollars next year, even if Alaskans forego the annual Permanent Fund dividend.

Under the new Department of Revenue figures, the state expects to have about $4.3 billion available to spend on the budget that will be debated next year. Last month, state legislators approved $5.3 billion in spending through summer 2021, including $680 million for a $1,000 Permanent Fund dividend in 2020. What comes after that isn’t certain.

If spending were to remain constant, the next year’s deficit would be $1 billion. The deficit would be nearly $400 million with no dividend.

“We’ve got a huge problem,” said House Minority Leader Lance Pruitt, R-Anchorage.

North Slope oil prices have plunged in the past few months, falling from an average of $67 per barrel in December to an average of $25 per barrel so far this month. After July 1, the state expects prices to average $37 per barrel for a year, then rise only slowly afterward. Oil is the state’s No. 2 source of revenue (Permanent Fund earnings are No. 1), and the price crash will force significant changes.

“There’s no question the revenue picture in Alaska is bleak, particularly when you factor in that our primary (savings) account is depleted and probably isn’t enough to survive the budget that we’re accustomed to,” said Speaker of the House Bryce Edgmon, I-Dillingham.

Preliminary estimates by the nonpartisan Legislative Finance Division indicate the state’s Constitutional Budget Reserve will contain about $400 million by summer 2021, but the reserve may also be used for the COVID-19 pandemic.

“We don’t know. That’s the problem,” Pruitt said.

Last month, Gov. Mike Dunleavy requested $1 billion in state spending: Lawmakers have approved a little over $88 million so far.

“We were fortunate to have savings to rely on for the last six years, seven years. We are in the last year of those savings, and they are no longer available,” said Pat Pitney, director of the nonpartisan Legislative Finance Division and budget director under former Gov. Bill Walker.

When budget debates begin next year, legislators and Dunleavy will have limited options: shift costs to cities and boroughs, cut state spending, additional spending from the Alaska Permanent Fund’s earnings reserve, or higher taxes.

“That’s the way it’s looking to me,” said Sen. Donny Olson, D-Golovin and a minority member of the Senate Finance committee.

Pruitt said he expects legislators to pick more than one option.

Olson added that an oil-tax ballot measure earmarked for a statewide vote this fall could change the equation somewhat, but he believes that regardless of the outcome, lawmakers will be looking at new options for revenue.

In a weekend letter to Dunleavy, Sen. Shelley Hughes, R-Palmer, said the governor should maximize the amount of spendable money in the Permanent Fund so lawmakers can cut spending over several years, creating a glideslope downward.

“We need a slope, not a cliff, Mr. Governor," Hughes wrote.

State spending, excluding the dividend and adjusted for inflation, has been slashed since its $8 billion peak in 2013, and Olson believes additional significant cuts are impossible.

Anyone who thinks otherwise “has their heads in the sand," he said.

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