A state budget for next year that contains “no major, major reductions and no major adds” was unveiled by Gov. Mike Dunleavy on Thursday, although it includes “full PFDs” and he introduced a drastic proposal to base much of the state’s future income on a yet-to-be defined monetization of carbon credits plan.
The $9.3 billion operating budget for the 2024 fiscal year includes an estimated Permanent Fund dividend of about $3,800, a deficit of about $265 million, and what the governor asserts is a 4% reduction compared to his first budget in 2019.
Dunleavy, whose reelection last month made him the only statewide candidate to win an outright majority in the new ranked choice voting system, was blunt about “full PFDs” again being something of a red-line-in-the sand item.
“It’s no secret I support the Permanent Fund,” he said during a news conference at the Alaska State Capitol where he and commissioners of several departments discussed details of the proposed budget. “It’s no secret I got over 50% as that being a part of the campaign.”
The proposed budget consists of about $4.5 billion in unrestricted general funds, $3.2 billion in federal funds, $845 million in designated general funds and $775 million in other funds.
Anticipated revenues for next year are based largely on an average oil price of $81 a barrel, down from the current year’s revised predicted average of $88.45. Both numbers are well below the peak of more than $120 earlier this year, and mean the state will barely break even this year. Dunleavy said that essentially “zeroed out” hopes for putting “forward funding” into education next year.
“This is further down than it was in the spring forecast, but as we know oil is volatile,” Department of Revenue Commissioner Adam Crum said during the news conference, noting fluctuations as usual are likely to be a role in budget negotiations next session.
Incoming Senate President Gary Stevens, a Kodiak Republican who will preside over a majority of nine Democrats and eight Republicans, said in a prepared statement immediately after the budget unveiling there are a number of potentially troubling aspects.
“I do have some concerns with the proposed PFD amount, no additional resources for education funding, a skeleton version of a capital budget, and the possibility we may need a supplemental budget for FY 2023 because of the decline in oil revenues,” he said.
Dunleavy, in response, said “this is a beginning budget” subject to the usual negotiations with lawmakers.
“We wanted to put forward a budget people can discuss logically and not emotionally,” he said. “This is why you don’t see large additions, you don’t see large reductions.”
Details about relying on a new long-term revenue cornerstone via monetizing carbon credits were vague, with Dunleavy saying those will be pursued during the legislative session, but he asserted it has the potential to earn more than a billion dollars annually.
“We’re going to have a lot of lunch and learns, a lot of discussions in the spring,” he said.
Budget highlights
The following are items highlighted from the governor’s news conference and documents released at the same time:
– “Due to lower than expected oil prices, the budget does call for a modest draw from the Constitutional Budget Reserve (CBR) of $245 million, and $20 million from the Statutory Budget Reserve (SBR). The combined balance for the SBR and CBR accounts is $2.1 billion dollars.”
– A capital budget of more than $200 million intended to leverage $1.7 billion in federal dollars, much of it from the bipartisan infrastructure bill.
– While the governor claims education is “fully funded,” he acknowledged a critic’s statement that funding the past several years has not kept pace with inflation. When questioned if an increase is likely to be in the final budget, he said it is “highly likely.”
– $10 million in capital budget funds for a Statehood Defense Initiative, which Dunleavy said is “to fight the federal government and other entities that wish to shut off or dampen our ability to develop our resources in Alaska.”
– $5 million for “A bold new initiative to market Alaska as more than just a tourist destination – a destination for American and international businesses seeking out new opportunities to grow their bottom line and diversify the state economy.” It is described as a joint initiative between the governor’s office and the Alaska Department of Commerce, Community and Economic Development.
Other reactions
Numerous releases and statements from state lawmakers and other stakeholders followed the governor’s news conference, many reiterating the “good starting point” sentiment expressed by Dunleavy. Among those expressing specific praises and concerns were:
– The incoming three-member state Senate Republican minority, which stated they “agree with the governor’s efforts to continue to put downward pressure on the state’s operating budget, maintain a reasonable capital budget, and provide for a statutory dividend in the midst of a sluggish economy which is teetering on a recession while Alaskans are being hit with record high inflation.” Sen. Shelley Hughes, R-Palmer, stated “I will be advocating for additional operating budget efficiencies and a bit more robust capital budget in the upcoming session.”
– Three members of the current House Republican caucus expressed their support. “Governor Dunleavy’s budget is practical,” said Rep. Ben Carpenter, a Nikiski Republican on the House Finance Committee. “It fairly supports our private and public sector economies. It continues the steady reduction of our state debt. The reliance on savings to balance the budget points to the continued need for the legislature to address our structural imbalance with long-term fiscal policies that prioritize economic growth, low taxation, and disciplined spending.” Their votes will likely be needed next session even if they’re in the minority if a narrowly divided bipartisan House majority is formed next session, since a three-fourth vote of legislators is needed to tap reserve funds the budget counts on.
– University of Alaska President Pat Pitney: “While it provides the critical foundation for our high-quality academic, workforce development, and research programs needed to fuel Alaska’s economy, the budget does not include important priority requests including growing fixed costs such as enhancing our cyber security, managing rising property insurance rates and urgent deferred maintenance projects,” she said in a prepared statement. “These needs are critical, and as the upcoming legislative session gets underway, we will continue to work with the governor and legislature to advocate for these priorities.”
Carbon cash
A mandatory 10-year fiscal outlook released with the proposed budget portrays a stark either/or scenario: a state drowning in debt via the status quo, or balancing the books by adding $900 million a year in carbon credits (officially labeled “new revenue scenario”) by FY2027 and beyond.
Meanwhile, the 10-year outlook predicts a status quo deficit of more than $600 million for FY25, $900 million in FY26 (depleting the state’s budget reserves) and exceeding $1 billion annually starting in FY29.
Despite the dire status quo scenario, Dunleavy administration officials were adamant about rejecting the idea of getting alternative revenue via more conventional means such as an income and/or sales tax, and/or reducing PFDs.
“The governor firmly stands by his comments throughout the four years he’s been in office: he does not support an income tax or reducing the PFD because these solutions are all impositions on Alaskans and take money out of Alaskans’ pockets,” Shannon Mason, the governor’s deputy press secretary, stated in an email. “Carbon measures generate new economic activity which can financially support the state. So instead of taking money from Alaskans, it’s creating a new revenue source. Alaska has always prided itself in using its natural resources, and this is a modern way of managing our natural resources to the maximum benefit of all Alaskans.”
Significant carbon credit earnings are occurring in Alaska and elsewhere, and at least some large governing bodies are considering relying to some extent on them,
Juneau-based Sealaska Corp. and two other Alaska Native corporations have earned more than more than $100 million since 2016 by putting tracts of timber holdings into California’s carbon credit markets, which allow forest owners to get paid for keeping lands unharvested for 100 years. A lawsuit was recently filed claiming 70% of the earnings must be shared with nine other regional corporations signing a 1982 settlement agreement based on provisions of the 1971 Alaska Native Claims Settlement Act.
An article in Forbes last month following the 2022 United Nations Climate Change Conference in Sharm el-Sheikh, Egypt, asserts “All eyes are on Belize, set to sell carbon credits worth up to $100 million.”
• Contact reporter Mark Sabbatini at mark.sabbatini@juneauempire.com
