‘Status quo’ 2025 Alaska budget $1 billion in red

Declining oil production is denting income, leaving Alaska Permanent Fund earnings and the federal government as the state’s biggest revenue generators

With a deep reduction in oil revenues expected, Alaska is on track to have an approximately $1 billion budget hole in the coming year that will have to be filled with money from savings accounts, according to a spending plan presented Thursday by the state’s Republican governor, Mike Dunleavy.

The governor described his budget for the year beginning next July 1 as “status quo” in most categories. The proposal totals $13.9 billion, including funds from all federal and state sources.

“There’s no cuts in this budget,” he said during a news conference in Juneau. There are even a few targeted areas with increases, he said.

The anticipated $987 million deficit would be filled with money from two savings accounts, the Constitutional Budget Reserve and the Statutory Budget Reserve, according to Dunleavy’s budget.

The governor’s budget likely understates the looming deficit, said state Senator Bert Stedman, R-Sitka, who co-chairs that body’s Finance Committee.

There are items missing in the submitted budget, including some expected capital items, meaning the final hole to be filled is likely to be more in the range of $1.3 billion to $1.5 billion, Stedman said in an interview. Lawmakers will face the challenge of balancing needed state spending with the necessity of preserving the Constitutional Budget Reserve and other savings accounts, he said.

“We don’t have a robust cash position in the CBR, by any means,” he said. “It’s unlikely that the Legislature will have a desire to A, overdraw the Permanent Fund, or B, empty the CBR.”

As he has in past years, Dunleavy included in his new budget a large Alaska Permanent Fund dividend based on a payout formula that has not been used for several years.

Under that “statutory dividend,” formula, the 2024 payout would likely be well above $3,000, in contrast with the $1,312 that was paid out this year. Such large formula-driven payouts have not been made since 2015. In the years since then, Permanent Fund investment earnings have supplanted oil money as the state’s top revenue source, aside from federal contributions.

Stedman said there is virtually no chance that the Legislature will agree to the large payout that Dunleavy’s budget proposes.

“On the statutory dividend, it still remains unaffordable. The math hasn’t changed,” Stedman said in an interview. But since the statute on the payout formula remains on the books, “I don’t fault him a bit for putting it into the budget,” he said.

The state’s revenue picture is dimmed by a significant decline in oil revenues, according to the official semiannual forecast released by the state in conjunction with release of the governor’s budget.

The state’s total unrestricted oil revenues – money that is available for regular state appropriations – is expected to be $2.4 billion for the 12 months ending next June 30, down from the total of $3.1 billion for the 12 months prior to that, according to the Department of Revenue forecast. Total unrestricted oil revenues flowing into the state treasury in fiscal 2025, which comprises the period from July 1, 2024, to June 30, 2025, is expected to be even lower, at under $2.1 billion, according to the forecast.

That decline in revenues is tied to production that is lower than earlier projected.

For the 12 months that ended last June 30, North Slope production averaged 479,400 barrels per day. Production is continuing to drop and is expected to average 470,300 barrels per day over the 12 months that will end next June 30. In fiscal 2025, which comprises the 12 months starting next July 1, is expected to be even lower, it is expected to average 463,800 barrels per day, according to the forecast.

North Slope production that peaked at over 2 million barrels per day in 1988 has declined as fields have aged; the last fiscal year in which it averaged over 500 million barrels a day was 2018, according to the state Department of Revenue.

Dunleavy acknowledged that the reduction in oil revenues puts the state in a difficult financial situation.

“If we were allowed to develop every play we have, every oil play we have, every gas play we have, every mining play we have, every timber play we have, our revenue would be double, triple what it is today,” Dunleavy said at the news conference.

He blamed the state’s inability to earn that money squarely on the administration of President Joe Biden and national environmental groups.

“In November 2024, If there’s not a change of management in DC . . . if that administration is still in play—you can see what’s happening now—it’s gonna shut the entire state down.”

The federal government is on track to contribute over $6.27 billion to the state in the coming fiscal year, making it the largest source of revenue in Dunleavy’s budget.

While the governor bemoaned Alaska’s loss of working-age adults as a sign that the state is “shrinking” and poised to continue to shrink in the long term, his budget included some targeted areas of increased spending for at least the short term.

One is public safety, where his budget is calling for money to hire more village public safety officers and buy a new airplane, along with a new patrol boat to be used in Southeast Alaska. The latter would have been helpful in the response to the deadly landslide that struck the island of community of Wrangell last month, said James Cockrell, commissioner of the Department of Public Safety,

“We could have housed, provided food and lodging and (brought) more first responders to the area,” Cockrell said during the news conference.

Another area where Dunleavy’s budget proposes some increased spending is transportation. A proposed expenditure of over $168.5 million for the Alaska Marine Highway System will help match large federal funding to be used to replace an aged ship and restore operations to past levels, said Ryan Anderson, commissioner of the Department of Transportation and Public Facilities. Grants for the ferry system have been championed in particular by Senator Lisa Murkowski, R-Alaska, and secured through the Infrastructure Investment and Jobs Act.

The budget also includes targeted funding for the Alaska Division of Public Assistance to cope with a severe backlog in the Supplemental Nutrition Benefits Program. Funding would allow for more staffers to be hired to process claims and would help improve services in other ways, Heidi Hedberg, commissioner of the Department of Health, said at the governor’s news conference.

For education, a high-profile issue because school districts have struggled with rising costs, Dunleavy’s budget proposes flat funding through the state’s per-student formula, called the Base Student Allocation. That would result in an overall decline in funding for the Department of Education and Early Development because the number of students in Alaska’s public schools has declined, said Lacey Sanders, director of the Office of Budget and Management.

“The decrease that’s reflected on that piece of paper reflects the student count reduction that has occurred from the prior year, so it is not a cut in education,” Sanders said. “It is fully funding the foundation formula and pupil transportation programs.”

The bipartisan Senate majority and numerous members of the state House have been pushing for an increase in the Base Student Allocation. In a compromise last year, lawmakers approved a one-time $175 million infusion to help school districts statewide cover rising costs. But Dunleavy vetoed half of that funding.

Since relocating to Alaska in 1978 to write for the Anchorage Times, Yereth Rosen has reported about the state for Reuters, the Alaska Dispatch News, Arctic Today and other organizations. She covers environmental issues, energy, climate change, natural resources, economic and business news, health, science and Arctic concerns. In her free time, she likes to ski and watch her son’s hockey games.

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