Lacey Sanders, director of the state Office of Management and Budget, presents Gov. Mike Dunleavy’s updated budget requests for this fiscal year and next to the Senate Finance Committee on Monday at the Alaska State Capitol. (Mark Sabbatini / Juneau Empire)

Lacey Sanders, director of the state Office of Management and Budget, presents Gov. Mike Dunleavy’s updated budget requests for this fiscal year and next to the Senate Finance Committee on Monday at the Alaska State Capitol. (Mark Sabbatini / Juneau Empire)

Small changes in governor’s proposed budget could mean big moves for Juneau

New plan moves staff from Permanent Fund building, opening space for city to put all employees there

A long list of tweaks in state spending for this year and next, unveiled last week by Gov. Mike Dunleavy as part of the regular annual budget process, could have some large impacts for Juneau — including freeing up enough office space in the building used by the Alaska Permanent Fund Corp. to move all city staff there.

The changes submitted by Dunleavy on Feb. 14 — the 30th day of the legislative session, as required by law — include $11.5 million in supplemental spending for the current fiscal year that ends June 30 as well as $9.1 million in revisions to his proposed budget for the fiscal 2025 year beginning July 1. Those amounts pale in comparison to the more than $14 billion in total state and federal spending for each of those years, but affect everything from sweeping programs such as Medicaid to individual employees assigned to specific tasks at agencies.

The revised budgets don’t significantly change the state’s overall fiscal situation. A $356 million surplus is forecast this year due largely to the state Senate prevailing in a budget battle last session that resulted in a $1,312 Permanent Fund Dividend, while Dunleavy’s proposed budget for next year has a $1 billion deficit largely because it includes a $3,429 PFD that would cost the state about $2.3 billion.

Dunleavy’s budget also projects the state will deplete the Constitutional Budget Reserve used to cover shortfalls by fiscal 2027 and have a $10.7 billion deficit by fiscal 2034. As such, the governor’s broad spending plan was greeted with skepticism when presented by Lacey Sanders, director of the Office of Management and Budget, to the Senate Finance Committee on Monday.

“I think that it’s been stated at this table several times last year and this year that the Legislature is highly unlikely to go down the path of spending funds from the Constitutional Budget Reserve account,” said Sen. Lyman Hoffman, a Bethel Democrat. “Does the administration have any other alternatives besides the Constitutional Budget Reserve account?”

Sanders said that while the budget process is a negotiation and the governor is willing to consider alternative plans by legislators, his current intent is to balance the budget using reserve funds.

Spending money from the reserve requires a three-quarters vote of the 60-member Legislature, and both the 17-member bipartisan Senate majority and 16-member House minority have stated they do not favor such an action — especially to fund PFDs such as those proposed by Dunleavy.

The governor, in previous statements, has been urging aggressive new natural resource development to help generate new revenue. Some coalitions of legislators, meanwhile, are urging measures such as continuing scaled-back PFDs and implementing some sort of statewide tax.

Small state move could lead to large local one

A small revision in next year’s budget that could have a highly noticeable impact for Juneau is the relocation of the state’s payroll services from the Michael J. Burns Building, where the Alaska Permanent Fund. Corp. also has offices, to the State Office Building. The payroll services lease at the Burns building expires at the end of this fiscal year, and Dunleavy’s revised budget states spending $180,000 for the relocation will result in greater long-term savings and efficiency.

It also means the Burns building would have enough space for all City and Borough of Juneau employees currently working downtown, according to an analysis presented by City Manager Katie Koester to Juneau Assembly members during a Committee of the Whole meeting last month. The committee authorized city administrators to explore options for moving some or all of the municipal employees to the building.

The search for new municipal space occurred after voters rejected bond measures to help fund a new City Hall during the past two municipal elections. Assembly members and administrators have stated both the current City Hall and some of the buildings being leased for staff need significant maintenance due to age.

Three proposals were submitted by property owners in response to a city request for office space, with the Burns building being the one most suitable for a partial or full relocation, in part because the other two would need major restructuring, according to Koester. Also, once the state’s payroll services employees leave the building there will be enough for the city’s 164 downtown employees as well as a possible new space to serve as the Assembly chambers.

Other adjustments this year and next

Another state function in Juneau that could be moving due to budget changes is an air quality laboratory operated by the Department of Environmental Conservation that has been shut down since August of 2022 due to a remodeling of the building it is housed in.

As a result “all samples have been shipped offsite to be processed by private labs or by the DEC lab servicing the Fairbanks area, resulting in additional costs and delays with lab results,” a summary of Dunleavy’s updated budget notes.

A total of $175,000, split evenly between this year and next, is proposed to move the local lab to a new site.

Among the most notable additions to next year’s budget is about $2 million to “support efforts to eliminate congenital syphilis.”

“Alaska ranked in the top ten nationally for sexually transmitted diseases (STDs) in 2019 and in 2020, Alaska saw the highest number of congenital syphilis (CS) cases ever recorded in the state,” the governor’s updated summary notes.

The extra funding to the Department of Health includes increasing testing and treatment capacity, more financial support for public health personnel within community-based clinics, a communication campaign to prevent STDs, and focusing prevention efforts on at-risk populations such as those with substance use disorder and people experiencing homelessness, according to the summary.

Other proposed spending is based on new or revised information available to the administration since Dunleavy released his proposed budget for next year in mid-December.

About $545,000 is added to the current year’s budget to pay settlements in two lawsuits against the state, for instance. An extra $21,000 in state funds for next year is requested to secure about $294,000 in federal funds to pay for increased Medicaid costs.

Another notable change is Dunleavy is removing a $7.5 million request in this year’s budget to replace the Pandalus research vessel based in Homer, replacing it with a request for $3 million to repair an existing vessel.

“Trident Seafoods has gifted the Department of Fish and Game a new vessel to replace the recently decommissioned Pandalus,” the administration’s summary states. “The donated vessel requires $3 million of work to bring it to spec for the department’s needs.”

That proposal was among several presented by Sanders where finance committee members said they wanted more information — at a subsequent meeting if necessary — before approving funding for them.

“I appreciate Trident’s offer, but are you confident that the two department employees have the wherewithal and the knowledge in having looked at this vessel to make a judgment call that this is an asset and not going to be a further liability?” said Sen. Click Bishop, a Fairbanks Republican.

Also raised during Monday’s meeting is whether the administration will be seeking further revisions to the budget in the wake of the federal government’s recent rejection of the State Transportation Improvement Program (STIP) for 2024-27, which is forcing state transportation officials to scramble to submit a modified plan to addresses the concerns raised by March 1.

“As we look at the STIP debacle that’s going on throughout the state are we anticipating an amended supplemental that’s going to be coming from that issue?” said Sen. Donny Olson, a Golovin Democrat.

Sanders said it’s too soon to know if additional funds to resolve the problem will be sought since “the department is working through that process.”

• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.

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