Peter Segall / Juneau Empire 
Lawmakers weren’t at the Alaska State Capitol, seen here on Friday, but the House Finance Committee met electronically to discuss Gov. Mike Dunleavy’s proposed budget.

Peter Segall / Juneau Empire Lawmakers weren’t at the Alaska State Capitol, seen here on Friday, but the House Finance Committee met electronically to discuss Gov. Mike Dunleavy’s proposed budget.

New revenue or no service, lawmakers weigh options

Savings are depleted and overdraws come with a cost

Correction: An earlier version of this article incorrectly stated the amount lost by the Permanent Fund in 2020. The amount is $7 billion, not $3 billion. This article has been updated to reflect this change. The Empire regrets the error.

State lawmakers will have to come up with plans for budget cuts and new revenues this year if they want to stave off a $1.2 billion hole in the budget in the 2023 Fiscal Year, Alexei Painter, an analyst for the Legislative Finance Division told the House Finance Committee.

Speaking to lawmakers from the state Capitol in Juneau Friday, Painter said large draws on the Earnings Reserve Account of the Permanent Fund proposed in Gov. Mike Dunleavy’s budget would come at a long-term cost of lost future revenue.

“It does come at a long-term cost, it comes at a cost of future revenue,” Painter said. “Meaning that essentially in the future it will result in a tax increase or reduced services, and that is a policy call for you as a legislature to make.”

Overdraws on the reserve account effectively mean a permanent increase in the state’s deficit, as that money would not be earning interest and the total amount of money that is earning interest would be less, Painter said. A 5% overdraw on the account would increase future deficits per year by $160 million in real terms, Painter said.

[Dunleavy proposes budget for ‘unprecedented’ times]

As part of his budget, Dunleavy is proposing a supplemental Permanent Fund Dividend of $1,916 for Fiscal Year 2021 and a dividend of $3,056 for the next fiscal year. The governor’s plan relies on a $3.1 billion transfer from the Earnings Reserve Account of the Permanent Fund for both 2021 and 2022.

The large PFD payments, along with proposals for infrastructure bonds to fund shovel-ready projects are an effort to kickstart the Alaskan economy after the COVID-19 pandemic.

After the release of the proposed budget, several lawmakers criticized the governor’s plan to overdraw the reserve account. In a statement in December, House Speaker Bryce Edgmon, I-Dillingham, said, “The governor’s proposal calls for spending $3 billion more than what the Alaska Permanent Fund Corporation considers sustainable, and there is no plan for how we will make ends meet beyond next year.”

If the Legislature were to choose taxes as a source of new revenue, Painter said, that would have to be decided this year if the money was going to be available in the 2023 Fiscal Year as new taxes take time to set up. Many state agencies had suffered cuts over the past years, Painter said, but those cuts had not been distributed evenly and affected small state agencies more than larger ones.

But the governor said the state’s economy will need some time to recover before it can handle them.

“Alaska’s economy has been significantly impacted by the pandemic and will need sufficient time to recover before any new taxes are considered,” Dunleavy spokesperson Jeff Turner said Friday in an email.

[Permanent fund CEO stresses long-term focus]

From Fiscal Year 2015-2021, there’s been an overall reduction of 13.8% in state spending, according to Painter, most of which came from agencies that aren’t related to schools, health or public safety. The Department of Health and Social Services’ budget declined by 6% during that time period and the Department of Education and Early Childhood Development was reduced by 2.3%, according to Painter’s data. All other state agencies were reduced by a cumulative 35.6%, or $441 million, Painter said. During that time spending on public protection agencies, what Painter said was a broad description of police and other public safety workers, had increased by 6%.

Former deputy commissioner of the Department of Revenue Larry Persily also testified to lawmakers Friday, and said filling the future $1.2 billion deficit will taxes alone would be “a heavy lift.” Other revenue sources and additional cuts to services would be necessary, he said.

“Having gone through this for years, the biggest spending are K-12, Medicaid and dividends,” Persily said. “You’d be pretty hard-pressed to cover a $450 million reduction in three years that doesn’t affect the big items. Substantially.”

Any new infrastructure for taxes would need to be set up soon, Persily said, but Dunleavy is also proposing a constitutional amendment that would prevent any new taxes without a direct vote of the people. If that were to pass, it would substantially limit the state’s options for revenue, Persily said. In his budget, the governor reference new revenue sources, Persily said, but didn’t go into specifics on what those sources might be.

In advertisements running on his Facebook page, Dunleavy argues the state can afford such a large draw from the Permanent Fund because the fund grew by $11 billion since March of 2020 alone. Persily was critical of that argument saying that is true, but only after a $7 billion loss in the spring. There is still a lot of uncertainty in the economy, Persily said, and cautioned against drawing so much from the Permanent Fund.

The state has already exhausted its other savings accounts, the Constitutional Budget Reserve and the Savings Budget Reserve, Painter said. The state needs to find new revenue or cut programs, he said, and each year the deficit continues, the worse the problem will become.

“Now, we don’t have anywhere to turn to other than again overdrawing the ERA,” Painter said. “Every year we draw more from the ERA than the statute calls for, means that we’ll have higher taxes or reduced services in the future.”

• Contact reporter Peter Segall at psegall@juneauempire.com. Follow him on Twitter at @SegallJnuEmpire.

More in News

Jasmine Chavez, a crew member aboard the Quantum of the Seas cruise ship, waves to her family during a cell phone conversation after disembarking from the ship at Marine Park on May 10. (Mark Sabbatini / Juneau Empire file photo)
Ships in port for the week of July 20

Here’s what to expect this week.

Michele Stuart Morgan (right), a Juneau Board of Education candidate, signs a qualifying petition for Jeff Redmond (center), who is also seeking one of three school board seats in the Oct. 1 municipal election, just before Monday’s filing deadline at City Hall. At left, Deputy Municipal Clerk processes last-minute paperwork filed by candidates. (Mark Sabbatini / Juneau Empire)
Here’s the candidates certified for the Oct. 1 municipal election ballot as the filing deadline passes

Two running for mayor, seven for two Assembly seats, six for three school board seats.

A U.S. Coast Guard Air Station Sitka helicopter hovers over Sitka Sound during routine hoist training on April 25, 2023. (Lt. Cmdr. Wryan Webb/U.S. Coast Guard)
Coast Guard calls off search for trio who went missing flying from Juneau to Yakutat

Haines pilot Samuel Wright, Yakutat residents Hans Munich and Tanya Hutchins were on plane.

Juneau Municipal Attorney Robert Palmer reacts to praise for his service from Assembly members after his resignation was announced during a May 13 meeting. (Mark Sabbatini / Juneau Empire file photo)
Three city attorney finalists to be interviewed in public sessions this week by Juneau Assembly

Two Juneau residents with CBJ experience and D.C.-based Army attorney seek to replace Robert Palmer.

Angela Rodell, former CEO of the Alaska Permanent Fund Corp., speaks to the House Finance Committee on Thursday, June 24, 2021. (Peter Segall / Juneau Empire file photo)
Angela Rodell, former Alaska Permanent Fund Corp. CEO, says she’s running for mayor

First-time candidate to challenge incumbent Beth Weldon; filing deadline for local election is today.

Republican U.S. House candidate Nick Begich, with sign-holding supporters, waves to Midtown Anchorage motorists on Election Day in 2022. (Yereth Rosen/Alaska Beacon)
Some Alaska Republican candidates pledge to withdraw if they aren’t atop GOP votes in primary

Pledges are a way to circumvent ranked choice voting, according to one supporter.

People protesting the death of Steven Kissack gather at Marine Park after marching through downtown Juneau on Sunday afternoon. (Jasz Garrett / Juneau Empire)
Protesters demand police accountability following death of Steven Kissack

Advocates gather where he was shot, say they are raising their voices because “he’s unable to speak.”

A U.S. Coast Guard Air Station Sitka helicopter hovers over Sitka Sound during routine hoist training. (U.S. Coast Guard Photo by Lt. Cmdr Wryan Webb)
Yakutat-bound charter flight missing from Juneau

Flight departed from Juneau on Saturday with three people aboard, according to U.S. Coast Guard.

President Biden at the White House on July 3. (Doug Mills/The New York Times)
President Joe Biden drops out of race, scrambling the campaign for the White House

Withdraws under pressure from fellow Democrats; endorses Vice President Kamala Harris to take on Trump.

Most Read