Legislature(2025 - 2026)SENATE FINANCE 532
01/28/2026 09:00 AM Senate FINANCE
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| Audio | Topic |
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| Start | |
| Governor's Fy 27 Budget Request Overview: Legislative Finance Division | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
SENATE FINANCE COMMITTEE
January 28, 2026
9:02 a.m.
9:02:53 AM
CALL TO ORDER
Co-Chair Hoffman called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Lyman Hoffman, Co-Chair
Senator Donny Olson, Co-Chair
Senator Bert Stedman, Co-Chair
Senator Mike Cronk
Senator James Kaufman
Senator Jesse Kiehl
Senator Kelly Merrick
MEMBERS ABSENT
None
ALSO PRESENT
Senator Cathy Giessel, Alexei Painter, Director,
Legislative Finance Division;
SUMMARY
^GOVERNOR'S FY 27 BUDGET REQUEST OVERVIEW: LEGISLATIVE
FINANCE DIVISION
9:03:44 AM
ALEXEI PAINTER, DIRECTOR, LEGISLATIVE FINANCE DIVISION,
(LFD) discussed the presentation, "Overview of the
Governor's FY27 Budget" (copy on file). He addressed slide
2, "Outline
FY26 Recap and Update Vetoes, Supplementals
Fall Revenue Forecast
FY27 Governor's Budget
Long-Term View
Mr. Painter pointed to slide 3, "FY26 Recap: Adjournment
Budget
When the legislature adjourned last year, there was a
projected budget deficit of $192.8 million in FY25 and
a surplus of $56.6 million in FY26 based on the Spring
revenue forecast ($68 oil).
The vote to fill the FY25 deficit from the CBR
failed, so the deficit would have been filled
first with a draw of up to $100 million from
AIDEA, then the remaining amount from the Higher
Education Investment Fund.
The legislature did not have a source for a
potential FY26 deficit.
The legislature accepted $42.9 million of the
Governor's requested $80.4 million of UGF increments,
added $44.6 million of increases not proposed by the
Governor, and made $34.0 million of budget reductions
to the Adjusted Base.
The legislature's budget funded the K-12 formula and
most statewide items at their statutory levels.
School Debt Reimbursement was funded at 75
percent and the Community Assistance Fund
capitalization was $13.3 million, enough to pay a
$20.0 million distribution to communities.
The Fire Suppression Fund and Disaster Relief
Fund were capitalized at their five-year average
of expenditures.
9:06:38 AM
Co-Chair Stedman requested a 10-year average to see the
delta between the five-year and ten-year comparison.
Mr. Painter agreed to provide that information.
Co-Chair Stedman remarked that the governor's veto did not
use a ten-year average.
Mr. Painter agreed.
Mr. Painter discussed slide 4, "FY26 Recap: Governor's
Vetoes and Override
FY25 Supplemental vetoes
$5.0 million UGF for ASMI
$62.2 million reappropriations to DOT for match
(coming from a mix of old projects and unused
prior year match)
AIDEA deficit fill language (meaning entire
deficit came from HEIF)
FY26 UGF vetoes totaled $103.6 million from operating
budget and $14.3 million from capital budget.
Largest veto ($45.4 million) was from K-12
foundation formula and was overridden.
Other vetoes included $26.9 million from Fire
Suppression Fund, $10.3 million from Disaster
Relief Fund, and $25.1 million from Major
Maintenance Grant Fund.
After the override, the enacted FY26 budget had a
projected $130.4 million surplus.
9:09:21 AM
Mr. Painter addressed slide 5, "FY26 Recap: Surplus to
Deficit
The Governor and legislature expressed skepticism
about the $68 oil price in the Spring Forecast, and
both aimed for a lower balancing price.
The Fall forecast reduced the projected oil price for
FY26 to $65.48 and projected revenue by $181.4 million
(due also to increased projected deductible expenses
and reduced production). This moves the projected
$130.4 million surplus to a projected $51.0 million
deficit before supplemental appropriations.
Mr. Painter looked at slide 6, "Vacancy Rates Have Reversed
Their Previous Downward Trend
Co-Chair Stedman requested that LFD come back after the
governor's amendments with a full projection on oil to
determine the sensitivity on the deficit.
Mr. Painter agreed to appear in a future meeting on the
subject.
Mr. Painter continued to discuss the graph on slide 6.
9:14:48 AM
Mr. Painter displayed slide 7, "FY25 Lapsing Funds
In the FY25 budget, lapsing general fund
appropriations were directed as follows:
Working Reserve Fund (none needed in FY25)
Group Health and Life Benefits Fund ($23.1
million utilized in FY25)
School Major Maintenance Grant Fund (added by
Legislature, $4.9 million used in FY25)
Catastrophe Reserve Account (none needed in FY25)
Central Services Cost Allocation Rate Smoothing
($5.0 million used in FY25)
Any remainder would reduce the deficit draw from
the Higher Education Investment Fund
Entire amount of available lapse was utilized for
these appropriations, and $1.6 million need for Group
Health and Life Benefits Fund was unmet and will be
carried forward to FY26.
9:19:19 AM
Co-Chair Stedman wanted transparency, and remarked that the
state should not rely on the lapse but rather appropriate
the needed funds to deal with the issue. He wondered if the
lapse money should go into the CBR.
Mr. Painter responded in the affirmative.
Co-Chair Hoffman stated that the assertion must have
significant consideration.
Co-Chair Stedman wondered whether it would change the cash
flow.
Mr. Painter stated that increasing the Alaska Care rate
would show the funds spread out across all agencies.
Co-Chair Stedman remarked that the budget would stay level.
Mr. Painter replied that it was the hope that the budget
would remain level.
Co-Chair Hoffman queried the impact of a governor's veto on
decreasing the budget.
Mr. Painter replied that an example could be seen in the
University budget.
Senator Kiehl remarked that there was some handling of
retirement payments that have similar consequences.
9:25:39 AM
Mr. Painter pointed to slide 8, "FY24 and FY25 Overspending
of Appropriations
In FY24, Legislative Audit identified that the
Department of Corrections overspent its UGF
appropriations by $8.0 million.
In FY25, DOC and the Department of Family and
Community Services both overspent their UGF
appropriations. Based on unaudited figures, the
amounts are $12.6 million and $0.7 million,
respectively.
These amounts will come to the legislature as
ratification requests.
Senator Kiehl remarked that it was not acceptable for the
governor to appropriate funds beyond what the legislature
passes in the budget.
Mr. Painter pointed out that the difference in spending was
due to a change in reporting by OMB to more clearly
identify current year overspending.
9:31:07 AM
Mr. Painter highlighted slide 9, "FY26 Governor's
Supplemental Budget
The Governor's operating and capital bills include
$239.8 million of UGF supplementals, including:
$69.7 million UGF for capital match for DOT to
make up for the vetoed FY25 reappropriations.
$40.0 million UGF for the Disaster Relief Fund.
$129.6 million directly from the CBR to the HEIF
to repay the estimated FY25 deficit draw.
The Governor's supplemental requests do not include
$55.0 million for the Fire Suppression Fund that is
needed to pay for fire disasters issued in 2025. A
more refined figure that includes spring 2026 costs
will likely be available later.
The operating budget includes Constitutional Budget
Reserve Fund deficit-filling language for FY26.
Additional supplemental requests are due on the 15th
day of the legislative session. These are expected to
include $36.4 million for Medicaid, among other items.
9:35:25 AM
Co-Chair Stedman noted the issue of ratification of
previous year's non-appropriated spent funds. He noted the
waterfall of expenditures, resulting in a borrowing from
the CBR. He stressed that without the three-quarter vote,
the money would already spent requiring a cash flow need
that would be drawn from the ERA.
Mr. Painter commented that there was a statutory procedure
for the governor to withhold expenditures, but that was
found to be unconstitutional. The result was that there was
currently no procedure to replace that statute.
Co-Chair Stedman stressed that the procedure would need to
happen before the end of the fiscal year.
Senator Kiehl stressed that it was a crime to spend money
without an appropriation.
9:39:40 AM
Mr. Painter discussed slide 10, "Fall 2025 Revenue
Forecast
DOR's Fall 2025 Forecast shows lower oil prices in
both FY26 and FY27. Production is lower in FY26 but
higher in FY27.
Lease expenditures (which are deducted in the
production tax calculation) are also up significantly,
although not all are deductible due to the lower price
projection.
Petroleum corporate income tax projections are also
down by $90.0 million in FY26 and $75.0 in FY27.
The overall result is lower projected revenue in FY26
and FY27 beyond what the price change alone suggests.
Mr. Painter looked at slide 11, "NPR-A Revenue
Background
Federal royalties from leases in the National
Petroleum Reserve-Alaska have historically been split
50/50 with the State, but 42 U.S.C. 6056a(l)(1)
requires that the State "give priority to use by
subdivisions of the State most directly or severely
impacted by development of oil and gas leased under
this Act." This requirement was litigated in the 1980s
and the result is the NPR-A Impact Grant program under
AS 37.05.530. Appropriations to that program are made
annually in the capital budget.
HR1 (also known as the One Big Beautiful Bill Act or
OBBBA) changed the royalty split to 70/30 for leases
issued after July 2025, but not until 2034.
Legislative Legal wrote an opinion in November 2025
that confirmed that OBBBA did not amend the sharing
requirement.
9:44:07 AM
Mr. Painter addressed slide 12, "NPR-A Revenue Governor's
Budget
In the Fall 2025 Revenue Sources Book, this revenue is
no longer classified as federal revenue and instead is
split between the general fund, Permanent Fund, and
the Public School Trust Fund.
The Governor's capital budget does not include the
typical appropriation to the NPR-A Impact Grant
program. His operating budget does, however, include
typical language that appropriates any lapsing
appropriations from the grant program to first the
Permanent Fund (up to 25 percent of total revenue) and
then the Public School Trust Fund (up to 0.5 percent
of revenue) and PCE Endowment, consistent with
statute.
However, the Governor's budget reports do not count
the latter appropriation as a general fund
expenditure, understating the deficit in the
Governor's fiscal summary by $9.6 million.
Based on the Legislative Legal opinion, LFD's reports
and fiscal summary maintain the federal classification
of NPR-A funds, decreasing FY27 UGF revenue by $9.6
million.
Co-Chair Stedman recalled that there was a deadline for
applying for the grants, which was generally ignored by the
state.
Mr. Painter agreed.
9:48:56 AM
Mr. Painter pointed to slide 13, "Percent of Market Value
(POMV) Draw from Permanent Fund
Mr. Painter addressed slide 14, "FY27 Adjusted Base
The starting point for the next year's budget is the
Adjusted Base, which is the prior year's budget less
one-time appropriations plus current statewide policy
decisions (such as salary adjustments and formula
changes) needed to maintain services at a status quo
level.
Starting in FY25, LFD modified the Adjusted Base to
include formula changes. Previously, it was difficult
to distinguish policy changes from changes in formula
amounts. Now, formula-driven adjustments (for items
like the K-12 formula, debt service, or retirement
payments) will be reflected in the Adjusted Base,
making policy changes by the Governor easier to see.
For formula items funded at a partial amount (such as
the PFD), the Adjusted Base would be the same formula
carried forward into the next year (so the amount
needed for a $1,000 payment, which was the formula
used in FY26, is carried forward into the FY27
adjusted base).
9:52:55 AM
Mr. Painter looked at slide 15, "FY27 Adjusted Base
(cont.): One-Time Items
Some of these items originated in FY25 and the amounts
here represent balances carried forward into FY26.
Mr. Painter discussed slide 16, "FY27 Adjusted Base
(cont.): Formula Adjustments
K-12 formula reduced primarily due to 2,064 (2.0
percent) decrease in brick-and-mortar students (only
partially offset by an 861-student increase in
correspondence students) and increased local property
tax values (offsetting State cost).
State retirement contributions increased due to
actuarial changes and policy changes by the ARM Board.
Mr. Painter addressed slide 17, "FY27 Adjusted Base
(cont.): Salary and Benefits Adjustments
Five unions are currently negotiating across the
Executive Branch and University of Alaska. These
contracts will likely be in future amendments from the
Governor.
9:58:22 AM
Co-Chair Stedman requested the percentage of the state
salaries and benefits relative to overall state spending.
Mr. Painter agreed to provide that information.
Mr. Painter highlighted slide 18, "Governor's FY27 Budget
The trend was pretty flat, and very similar to the previous
year's budget. The largest impact was the Permanent Fund
Dividend (PFD). He noted that in FY 26 the deficit was $51
million, and there were $240 million in supplemental
requests. He noted the resulting current deficit, which
would need to be covered from some source. He remarked that
there was a projected deficit of approximately $1.5
million.
Co-Chair Stedman asked about the estimate that might be
presented the following week.
Mr. Painter replied that the largest items were Medicaid,
fire suppression, SNAP benefits, and the Department of
Corrections (DOC) community residential centers. He stated
that there were other items that he was not aware.
Co-Chair Stedman remarked that it was one of the largest
supplemental budget he has seen.
Co-Chair Hoffman stressed that the legislature would work
on complying with the governor's request.
10:03:57 AM
Mr. Painter discussed slide 19, "Governor's FY27 Budget
(Cont.) He stated that the graph was often referred to as
the "swoop graph." He remarked that most items were fairly
close, except for the PFD. The graph compared the
priorities of the legislature versus the governor's
priorities. He noted that the Department of Agriculture was
included in the graph, because it was in the governor's
budget.
Co-Chair Stedman thanked the Office of Management (OMB) for
including the PFD. He wondered whether there was guidance
on the capital budget versus the operating budget.
Mr. Painter replied that the constitutional spending limit
reserves one-third of the spending limit for the capital
budget. He noted that approximately half of the current
limit was spent currently. He stated that the operating
budget was not currently in danger of reaching the two-
thirds of the limit.
Co-Chair Stedman remarked on the deferred maintenance, and
then hoped that there would be some capital budget
investments on building infrastructure. He stressed that
payroll must be met before any other proposals.
10:07:13 AM
Co-Chair Hoffman felt that the governor should also support
the capital budget, and not veto the capital budget
requests.
Mr. Painter pointed to slide 20, "Governor's FY27 Budget
(Cont.) He stated that the slide outlined where the money
comes from and where it goes. He remarked that the largest
source of the revenue was the POMV draw from the Permanent
Fund. He stated that the graphic might help the public
understand the revenue. He stated that the agency
operations used the most money.
Mr. Painter displayed slide 21, "Governor's FY27 Budget
(Cont.)
Agency operations are $11.3 million (0.2 percent)
above adjusted base.
DOH: Medicaid reduced by $10.0 million due to
early termination of FY26-27 temporary increment
for behavioral health rates.
DOT: Added $6.5 million UGF to replace one-time
fund sources used in the FY26 budget.
Added $5.2 million UGF to replace Restorative
Justice Funds that are unavailable due to the
lower FY26 PFD.
Added $1.9 million UGF, $7.9 million all funds
for IT Class Study.
Mr. Painter addressed slide 22, "Governor's FY27 Budget
(Cont.)
Statewide items are $14.5 million (3.1 percent) below
Adjusted Base.
Does not fully fund ARM Board recommended
contribution to PERS and TRS. Governor's amount
is $37.7 million below ARM Board.
10:12:41 AM
Co-Chair Stedman wondered how short funding the unfunded
liability would be split between the state and communities.
Mr. Painter replied that the ARM Board wanted to use a
payment plan for the post-2014 new liabilities due to
actuarial underperformance that would have paid it off
within fifteen years from when they began.
Co-Chair Stedman remarked that approximately 13 percent of
the aggregate payroll went toward the unfunded liability.
10:17:14 AM
Mr. Painter replied that the ARM Board was attempting to
solve the issue, and stated that there was great concern
about not paying off the liability in a timely manner.
Mr. Painter continued to discuss slide 22:
Fully funds school debt reimbursement and REAA
fund.
$14.0 million from PCE Fund and no UGF to
Community Assistance Fund. This would result in
an $18.0 million payment to communities in FY28,
less than the amount of the base payments.
$47.5 million UGF for Fire Suppression Fund,
matching post-veto, pre-supplemental FY26 total.
$24.0 million UGF to Disaster Relief Fund, $11.0
million above post-veto, pre-supplemental FY26
total.
Mr. Painter highlighted slide 23, "Governor's FY27 Budget
(Cont.)
Capital Budget totals $156.6 million UGF, $2.1 billion
all funds.
$127.7 million GF/Match (81.1 percent of total
UGF)
$22.9 million AHFC dividends to AHFC projects
(compared to $28.7 million board recommendations)
$1.9 million GF/Mental Health (compared to $6.5
million MH Trust recommendation)
$4.1 UGF for two projects in DFG ($3.3 million
Gulf of Alaska Chinook Salmon, $0.8 million
Alaska Marine Salmon Program)
No funding for school construction/major
maintenance
$26.3 million from Alaska Capital Income Fund for
deferred maintenance
10:23:01 AM
Mr. Painter looked at slide 24, "Governor's FY27 Budget
(Cont.)
Also notable is what is not yet in the budget:
Medicaid the Governor's budget does not contain
an increase to Medicaid funding, but the
Department of Health stated that the projection
will be trued up in a future amendment.
Preliminary projections indicate a need for an
additional $47.4 million UGF.
This does not factor in any increases
related to four rate rebalancing studies
commissioned by DOH.
Ongoing Employee Bargaining Negotiations five
unions are currently negotiating new cost of
living increases to begin in FY27.
SNAP Administrative Cost Match Starting in
FFY27, the State's match share for SNAP
administrative costs will increase from 25
percent to 50 percent, increasing State cost by
an estimated $10.7 million. This was not included
in the Governor's budget.
From FY21-26, the Governor's amended budget was on
average $103.3 million UGF higher than his December
release.
10:27:59 AM
Co-Chair Hoffman asked about the SNAP administrative cost
match. He specifically asked about the implications of not
increasing the match from 25 to 50 percent.
Mr. Painter replied that there would not be enough general
funds to pay for those employees.
Co-Chair Hoffman surmised that the impact of cutting staff
would impact the administration of SNAP funds.
Mr. Painter agreed.
Mr. Painter discussed slide 25, "Additional Potential Items
for FY26-28
Federal Disparity Test: Governor's budget assumes
Alaska passes the federal K-12 disparity test,
allowing the State to deduct federal impact aid from
its share of the K-12 formula. The State failed the
FY26 test and is currently appealing the ruling. If
the State fails its appeal, formula costs would go up
by an estimated $78.9 million in FY26 and $70.8
million in FY27.
AMHS: Federal Transit Administration has not yet
issued grant application for FFY26 Rural Ferry
program. CY26 AMHS budget relies on $77.9 million of
federal funds (after factoring in $5.0 million of UGF
backstop) and FY27-28 Governor's request relies on
$83.3 million. If these funds are not granted, those
will be budget holes in both FY26 and FY27.
FY26 capital budget appropriated previously
awarded funding so it is unaffected.
Even if the funds are granted eventually for FY26
and FY27, they expire after that and would need
to be replaced in FY28.
SNAP Match: In addition to the administrative match,
H.R. 1 adds a match requirement for SNAP funding
itself. The timing and amount depend on Alaska's error
rate and would begin in FFY28 unless the State
receives a waiver to delay the impact. DOH estimates
an impact of $15.4 to $46.2 million.
10:33:35 AM
Mr. Painter addressed slide 26, "UGF Budget and Revenue,
FY14-26 He stated that the graph was the current fiscal
picture because oil prices began to decline in 20214. He
stated that the big change occurred in 2019, because the
legislature passed the POMV, which increased revenue
significantly.
Mr. Painter highlighted slide 27, "CBR and SBR Balances,
FY14-26 He noted the significant reductions in the
savings balances before the POMV draws.
10:38:16 AM
Mr. Painter pointed to slide 28, "Earnings Reserve Account
(ERA) Sufficiency
APFC's Statutory Net Income projection for FY27+ is
6.20 percent, compared to inflation of 2.50 percent
and a 5.00 percent POMV draw. This leads to a
projected decline in the balance of the ERA balance.
LFD's probabilistic modeling shows an 33 percent
chance of having an insufficient ERA balance to make
the full POMV draw over FY27 FY36, assuming full
inflation proofing and statutory POMV draws. If
inflation-proofing is suspended when the ERA balance
drops below the following year's POMV draw, that drops
to 24 percent.
This outlook is significantly better than a year ago
when the chances were 46 percent and 33 percent,
respectively. This improvement is due to relatively
strong realized earnings in FY25 ($5.9 billion,
compared to a projected $4.6 billion).
Mr. Painter displayed slide 29, "Long-Term Revenue
Outlook
The Department of Revenue's Fall Forecast projects
that oil prices will rise from $62.00 in FY27 to $73.0
in FY35 (slightly slower than inflation)
Oil production is projected to increase from 517.8
mbbl/day in FY27 to 659.9 mbbl/day in FY35.
The Permanent Fund is projected to earn 7.30 percent
per year. APFC's POMV projections do not match the
Revenue Sources Book (they are slightly higher for all
years). LFD's modeling is based on APFC's forecast,
with an adjustment for NPR-A royalties.
10:42:11 AM
Co-Chair Stedman wondered whether a per barrel production
forecast was expected to go out.
Mr. Painter replied in the affirmative.
Co-Chair Stedman he felt that there should be an analysis
the various components on that issue.
Senator Kiehl wondered whether the production increase was
expected to be plus 160,000 barrels per day.
Mr. Painter replied in the affirmative.
Senator Kiehl remarked that it was $3.5 billion of
additional gross value.
Mr. Painter highlighted slide 30, "Long-Term Fiscal
Outlook
Since revenue is projected to increase roughly with
inflation, LFD modeling shows that the current $1.5
billion structural deficit will persist throughout the
modeling window without policy changes.
This outlook arguably understates the true ongoing
deficit because the current capital budget is
unsustainably small for deferred maintenance and
renewal of State facilities.
The Governor's 10-Year Plan does not make significant
policy changes and therefore continues the structural
deficit. The Governor's proposed revenue measures were
introduced too late to be analyzed for this
presentation.
10:45:11 AM
Mr. Painter concluded his presentation.
Senator Kaufman remarked that personal finance often showed
probabilistic modeling. He wondered whether there was a
product like that which would take in the likely
assumptions of revenue and projected assumptions of cost
and projects it out in a graphic presentation of likelihood
for success.
Mr. Painter stated that there was a probabilistic model
that incorporated volatility of investment revenue and oil
production and price. He agreed to present on that mode.
Co-Chair Hoffman stated that the next meeting would be the
upcoming Monday.
ADJOURNMENT
10:47:14 AM
The meeting was adjourned at 10:47 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 012926 LFD FY27 Overview SFIN.pdf |
SFIN 1/28/2026 9:00:00 AM |