New Revenue Forecast Shows Big State Deficit

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Created on Thursday, 13 March 2025 15:31

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By JAMES BROOKS Alaska Beacon

The state of Alaska is still facing a significant budget deficit despite a revised state revenue forecast published Wednesday by the Alaska Department of Revenue.

Oil revenue makes up about 40% of Alaska’s general-purpose revenue, leaving state finances unstable and dependent upon estimated oil prices. The Department of Revenue updates its outlook twice per year, and its changes can radically alter the state’s budget process.

For the 2025 fiscal year, which ends June 30, the department is estimating $6.23 billion in general-purpose revenue, formally known as “undesignated general funds.” 

This amount doesn’t include federal funding and revenue designated for specific purposes, like university tuition.

The undesignated general fund estimate is about $30 million less than a prior forecast from the fall, and as a result, the state is looking at a $200 million deficit in the current fiscal year under spending previously proposed by Gov. Mike Dunleavy. 

Lawmakers are expected to edit the governor’s spending plan before adjourning the current legislative session, but it isn’t clear how that deficit will be resolved.

For the 2026 fiscal year, which begins July 1, the Department of Revenue is expecting $6.13 billion in general-purpose revenue. That’s down $70 million from the $6.2 billion forecast in the fall.

Under Dunleavy’s proposed FY26 budget, the new forecast results in a $1.64 billion deficit.

Legislators are examining alternatives to the governor’s budget, with multiple different scenarios floated in recent weeks.

On Wednesday, the Alaska House voted in favor of a $275 million public school funding increase. In a budget scenario with that increase and an estimated $1,420 Permanent Fund dividend per recipient, the FY26 deficit is near $532 million. 

Erasing that deficit through Permanent Fund dividend cuts alone would reduce the dividend to about $600 per recipient, a step that no legislator has proposed. 

One potential source for closing short-term deficits is to draw from a state savings account, the Constitutional Budget Reserve, which held $2.82 billion on Jan. 31. But drawing from the CBR requires three-quarters of both the Senate and House to agree, and the leaders of the Alaska Senate have said they will not vote to spend from the CBR. 

Legislative hearings on the revised forecast are scheduled for Thursday in both the House Finance Committee and the Senate Finance Committee.

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