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

The Aurora Borealis glows over the Mendenhall Glacier in 2014. (Michael Penn / Juneau Empire File)
Aurora forecast

Forecasts from the University of Alaska Fairbanks’ Geophysical Institute for the week of Dec. 3

Mountain reflections are seen from the Mendenhall Wetlands. (Courtesy Photo / Denise Carroll)
Wild Shots: Photos of Mother Nature in Alaska

Superb reader-submitted photos of wildlife, scenery and/or plant life.

Clarise Larson / Juneau Empire 
At Wednesday evening’s special Assembly meeting, the Assembly appropriated nearly $4 million toward funding a 5.5% wage increase for all CBJ employees along with a 5% increase to the employer health contribution. According to City Manager Rorie Watt, it doesn’t necessarily fix a nearly two decade-long issue of employee retention concerns for the city.
City funds wage increase amid worker shortage

City Manager says raise doesn’t fix nearly two decade-long issue of employee retainment

People and dogs traverse the frozen surface Mendenhall Lake on Monday afternoon. Officials said going on to any part of Mendenhall Lake can open up serious risks for falling into the freezing waters. (Clarise Larson / Juneau Empire)
Officials warn residents about the dangers of thin ice on Mendenhall Lake

Experts outline what to do in the situation that someone falls through ice

(Michael Penn / Juneau Empire File)
Police calls for Saturday, Dec. 3

This report contains information from law enforcement and public safety agencies.

Molly Yazwinski holds a 3,000-year-old moose skull with antlers still attached, found in a river on Alaska’s North Slope. Her aunt, Pam Groves, steadies an inflatable canoe. (Courtesy Photo /Dan Mann)

 

2. A 14,000-year-old fragment of a moose antler, top left, rests on a sand bar of a northern river next to the bones of ice-age horses, caribou and muskoxen, as well as the horns of a steppe bison. Photo by Pam Groves.

 

3. Moose such as this one, photographed this year near Whitehorse in the Yukon, may have been present in Alaska as long as people have. Photo by Ned Rozell.
Alaska Science Forum: Ancient moose antlers hint of early arrival

When a great deal of Earth’s water was locked up within mountains… Continue reading

FILE - Freight train cars sit in a Norfolk Southern rail yard on Sept. 14, 2022, in Atlanta. The Biden administration is saying the U.S. economy would face a severe economic shock if senators don't pass legislation this week to avert a rail worker strike. The administration is delivering that message personally to Democratic senators in a closed-door session Thursday, Dec. 1.  (AP Photo / Danny Karnik)
Congress votes to avert rail strike amid dire warnings

President vows to quickly sign the bill.

Mark Sabbatini / Juneau Empire
Juneau state Sen. Jesse Kiehl, left, gives a legislative proclamation to former longtime Juneau Assembly member Loren Jones, following Kiehl’s speech at the Juneau Chamber of Commerce’s weekly luncheon Thursday at the Juneau Moose Family Center.
Cloudy economy, but sunnier political outlook lie ahead for lawmakers, Kiehl says

Juneau’s state senator tells Chamber of Commerce bipartisan majority a key to meaningful action

Most Read