House Finance hears OMB overview of Dunleavy FY2026 budget; OMB seeks fast‑track supplementals and a CBR draw

Lacey Sanders, director of the Office of Management and Budget, told the Alaska House Finance Committee in January 2025 that the governor’s FY2026 budget is a high‑level starting point that reflects Gov. Mike Dunleavy’s priorities and includes multiple operating, capital and targeted supplemental requests.

Sanders said the administration will present four appropriation bills — operating, capital, mental‑health and a new fast‑track supplemental bill — and described the budget as a starting point as the Legislature and administration work through supplementals and updated revenue forecasts.

The nut of the presentation was revenue and the proposed approach to a projected deficit. Sanders said updated forecasts and three supplementals already in the package produce a projected $150 million shortfall for FY2026 and that the governor’s proposal would draw from the Constitutional Budget Reserve Fund to cover that, subject to the Legislature’s appropriation and subsequent revenue updates.

The OMB director flagged several fast‑track supplemental and one‑time requests to the committee and described the purpose of each: - A $50 million multi‑year appropriation to the Alaska Industrial Development and Export Authority (AIDEA) to provide a backstop for front‑end engineering work toward a final investment decision on the Alaska natural gas pipeline project; - A $10 million multi‑year appropriation for the Alaska Seafood Marketing Institute to implement a comprehensive marketing plan for wild Alaska seafood; - A $15 million fast‑track supplemental to replenish the Disaster Relief Fund and provide immediate spending authority for current disasters; the administration additionally proposes a $13 million FY2026 deposit into that fund to cover anticipated disaster needs.

Sanders said one smaller item restores operating funding for Alaska Gasline Development Corporation and that details and agency experts would be brought forward to explain timing and need.

On revenues, Sanders said OMB used the Department of Revenue forecast as the starting point and reiterated that a March spring forecast could change the revenue picture. She noted a roughly $220 million downward change between earlier and later forecasts, and that some Medicaid and other program projections (the Department of Health’s Medicaid estimate and several bargaining unit negotiations) could add to current‑year supplementals; Sanders cited a roughly $14 million Medicaid projection for the current year as one example.

Major programs and highlighted agency items discussed or questioned by lawmakers included: - Permanent Fund dividend: Sanders said the governor’s FY2026 proposal includes the full statutory permanent fund dividend and that the governor “continues to advocate for a full statutory dividend.” Committee members asked for the dividend amount expressed as a share of the operating budget; OMB offered to provide that calculation. - Education: Sanders said the budget includes statutory formula funding for the K‑12 foundation formula and pupil transportation, and that the base student allocation (BSA) in the proposal is set at $5,960. She and lawmakers discussed teacher recruitment and retention increments, career and technical education grants, and recurring requests; Sanders said OMB would follow up with the Department of Education on results from prior‑year increments. - Corrections: OMB is proposing funding adjustments tied to collective‑bargaining changes. Sanders said the budget includes about $3.9 million to cover under‑projected supervisory standby pay that emerged after overtime was moved into a separate allocation, and that overtime accounting will be moved back to institution budgets so future calculations are accurate. The budget also includes funding for peer support and wellness and for vocational and training programs in institutions; specifics and long‑term cost‑benefit tracking were referred to subcommittee review. - Alaska Psychiatric Institute: Sanders said the department needs additional general‑fund authority (an increment discussed in the hearing was reported around $440,000) after Centers for Medicare and Medicaid Services changes and reduced disproportionate‑share payments following the end of the public‑health emergency; DFCS staff explained declines in Medicaid billings and private insurance collections as drivers of the request. - Public safety and public works: The proposal includes additions to the VPSO program, restoration of a Talkeetna trooper post and new investigators for child‑sex‑assault cases in Western Alaska, plus DOT requests for Dalton Highway training and Northern Region roadside hardware repairs. DOT officials explained rising guardrail repair costs and personnel shortages on remote highways. - University of Alaska: OMB’s operating‑budget highlight included roughly $20 million in general funds (plus university receipts) for fixed operating costs (cybersecurity, IT, facilities, utilities) and salary adjustments tied to bargaining.

Committee members repeatedly pressed for follow‑ups and added detail. Sanders and agency lifelines agreed to provide more specific numbers and documentation on: the composition and timing of expected supplementals before the Feb. 4 statutory supplemental deadline; the March revenue forecast; the breakdown and justification for the AGDC $50 million fast‑track request and the related restoration of AGDC operating funds; the magnitude and sources of the Permanent Fund Dividend appropriation on the operating budget; vacancy and hiring metrics for Alaska State Troopers and VPSOs; and outcomes or performance data tied to recurring workforce‑development and teacher‑recruitment increments.

Several legislators urged OMB and agencies to provide memos or written explanations on operational questions raised in the hearing — for example, how deferred‑maintenance reallocations affected the Disaster Relief Fund and how DOT decides when to clear encampments and how costs are recovered or assigned.

No formal committee action or vote occurred during the presentation; the OMB presentation will continue at the committee’s next scheduled meeting.

At the hearing, Sanders repeatedly described the materials as a starting point and said more supplementals, amendments and the spring revenue forecast will shape a more complete budget picture going forward. Representative Josephson adjourned the meeting and scheduled continuation of the budget presentation for the committee’s next session.