OMB outlines governor's Feb. amendments: $522M in FY25 supplementals, FY26 changes push deficit to $1.56B

Lacey Sanders, director of the Office of Management and Budget, presented the governor’s transmitted amendments to the FY2025 supplemental and FY2026 budgets and told the Senate Finance Committee the requests were sent to the Legislature on Feb. 18 per statutory deadline.

Sanders summarized the numbers the administration submitted: FY2025 operating supplementals submitted in the package total $453,200,000 (of which $36,200,000 was unrestricted general funds in the recent submission) and capital supplementals submitted totaled $74,300,000. Combined supplementals brought the grand total submitted to $522,000,000 with $84,200,000 in unrestricted general funds; the administration updated the FY2025 deficit to approximately $157,000,000. For FY2026 the amendments submitted totaled $312,000,000, including $43,900,000 in unrestricted general funds; Sanders said the administration’s updated projection shows an overall deficit of $1,560,000,000.

Sanders framed the packet as a mix of FY2025 supplementals and FY2026 adjustments and walked the committee through agency highlights:

- Department of Agriculture: Implements Executive Order 136 by transferring 37 positions and $7.2 million from the Department of Natural Resources into the new Department of Agriculture and requesting $2.7 million in new funding for 13 startup positions.

- Department of Administration: Two AI-related initiatives, including offering Microsoft 365 Copilot to about 2,000 state employees and two short-term AI projects to streamline permitting and payroll/forms work.

- Department of Corrections: Technical corrections and increases, including restoring the restorative-justice (formerly "felon" funds) projection to its statutory level (about $5 million in the relevant column) and an increase of $4.1 million for community residential center contracts.

- Department of Environmental Conservation: A FY2026 request to assume federal primacy for a dredge-and-fill permitting program under the Clean Water Act; the request is phased and starts with five positions to develop applications, regulations and guidance.

- Department of Health: Updated Medicaid projections that increase unrestricted general funds need by $19.6 million and anticipate $220 million in additional federal receipts; the administration also described a separate SNAP error-rate penalty for FY2023 of $11.9 million, with an option to pay half as a penalty and invest half in technology improvements to reduce future errors.

- Division of Public Assistance: Two items to continue virtual contact-center operations and add eligibility-processing capacity, including $8.2 million split evenly between state match and federal receipts for the contact center.

- Department of Public Safety: A $1.6 million increase to a grant for the Northwest Arctic Borough’s Village Public Safety Officer program to reflect local investments and recruitment/retention costs.

Sanders also noted several capital items in the amendment package: $1.5 million for an elevator at Mount Edgecumbe High School to meet accessibility needs; $6.2 million to complete Fairbanks trooper post renovations (phase 2); and $2 million for state-managed seaplane bases and harbor facility maintenance, among other capital requests and technical corrections.

Committee members pressed OMB on the fiscal outlook and some specific items. Senator Stedman and others questioned why the administration would submit expansionary items while projecting deficits; Stedman commented that the state needed to consider offsets or revenue changes before expanding services. Senator Kiel pressed whether AI funding is premature given persistent manual payroll processes and raised follow-up questions about the SNAP penalty and prior assurances about corrective investments.

Sanders responded that the administration’s role is to bring the requests forward for committee consideration, confirmed that the POMV draw shown is the 5% (the maximum allowable draw in the model presented), and offered to follow up in writing on detailed timing and background for the SNAP penalty and other specific items.

The committee did not vote on the amendment package; Sanders said the operating amendments will go to subcommittees for consideration. Committee members requested follow-up information and OMB agreed to provide additional detail on several items. The committee adjourned after scheduling its next meeting for Feb. 25, when it will hear from the Department of Transportation and Public Facilities.