Legislative Finance Presents Three‑Year Budget Outlook; Status‑Quo FY26 Scenario Shows Nearly $400 Million Deficit

Alexi Painter, the Legislative Fiscal Analyst, briefed the Senate Finance Committee on a three‑year budget outlook the committee requested, laying out revenue drivers, cost pressures and several multi‑year scenarios the chairs asked staff to model.

Painter said the fall revenue outlook showed an $81.5 million deficit for FY25 before supplementals and presented a status‑quo scenario for FY26 that, after inserting placeholders for Medicaid growth, K‑12 funding at last year’s levels, community assistance, AMHS backstop and capital and deferred maintenance additions, produced a roughly $397 million deficit in FY26; combined with the FY25 gap, that scenario showed a $536 million two‑year deficit.

Painter highlighted the revenue sensitivity of Alaska’s budget to oil prices and production, saying that at current prices “every dollar change in the price of oil is a difference in our revenue of 35 to 40,000,000.” He also described the POMV (percent of market value) draw from the Permanent Fund as a driver that increases between FY26 and FY27 as the permanent fund value is incorporated into the formula change the committee has discussed.

On cost drivers, Painter noted Medicaid spending was rising: the FY26 Medicaid budget reflected a substantial increase from prior years and was a significant factor in the FY26 baseline. Other upward pressures included K‑12 funding bills under consideration (including proposals that would raise the base student allocation materially), rising agency operations (health benefits, pay and contractual costs), a statewide deferred‑maintenance backlog that the Office of Management and Budget updated to $2,400,000,000, and a $7,400,000,000 pension past‑service liability amortized through FY2039.

Painter flagged federal funding uncertainties as a major risk to the outlook. He said the Infrastructure Investment and Jobs Act (IIJA) grants have supported projects and that some federal grant funding (including for the Alaska Marine Highway System) is scheduled to end; he identified the AMHS five‑year IIJA grant support as roughly $76,500,000 and warned that if the federal program is not extended, the state would face that hole in FY28. He also noted that proposed federal changes to Medicaid FMAP rates or other federal program cuts could materially increase state general fund obligations.

Committee members pressed on particulars: senators asked about the drivers of increased special‑education intensive student counts and the shift toward correspondence (remote) students, which Painter said significantly changes K‑12 funding formulas because correspondence students are counted and funded differently than brick‑and‑mortar students. Senator Stedman raised the state’s pension unfunded liability and urged follow‑up with the ARM board about long‑term solvency.

Painter presented illustrative budget scenarios the chairs asked for that included placeholders for labor‑contract renewals, a $680 base student allocation increase (status quo from last year), community assistance distributions, added deferred maintenance and capital funding and a 25% POMV PFD assumption; those assumptions produced the multi‑year shortfalls shown in the slides.

Why it matters: Painter told the committee that under the status‑quo assumptions the Legislature faces significant two‑year deficits and that choices will be required—either new revenues or spending reductions—to balance the budget in coming years. He said the constitutional budget reserve is intended for rainy‑day use and should not be treated as a recurrent revenue source for ongoing expenses.

Ending note: Painter said the Department of Revenue will present the spring revenue forecast to the committee in mid‑March. Members responded that the committee must address both near‑term supplementals and the longer‑term structural gap this session.