| Legislation for Governor Mike Dunleavy’s proposed fiscal plan is now with the legislature for consideration.
Short to medium term forecasts project that the State of Alaska will receive less revenue than the amount required to provide essential State services and additional obligations the legislature has created through programs and funding formulas in statute.
The Governor’s fiscal plan enables the State of Alaska to meet its obligations while minimizing the impact to Alaskan families and businesses.
“Alaskans deserve a stable, rules-based fiscal system that avoids the boom-and-bust cycle that comes with a budget based on the price of oil,” said Gov. Dunleavy. “This plan charts a course through short-term budgetary challenges to the more prosperous period ahead for Alaska.”
The core components of the Governor’s fiscal plan include:
1. Statutory Spending Cap (HB 275 / SB 223)
The legislature must constrain spending or else individual Alaskans and Alaskan businesses will be burdened with higher taxes. The Governor has been consistent that he will not support a ‘tax more, spend more’ approach. The Governor’s fiscal plan caps State spending at no more than 1% growth each year.
2. Permanent Fund Dividend Growth and Preservation for Future Generations (HJR 30 / SJR 23)
The Alaska Supreme Court ruled that the Legislature is not required to follow the formula currently in statute for the payment of Permanent Fund Dividend, each year the legislative session is consumed with debate over how much of the PFD the legislature will take from Alaskans. Governor Dunleavy’s fiscal plan puts an end to this by revising, rather than ignoring, the PFD formula and putting it in the Alaska Constitution, and returns Alaska to a rules-based system for paying PFDs.
The constitutional amendment would preserve the growth of the Permanent Fund and include a 50/50 PFD starting in 2028, providing an estimated $3,600 dividend per year.
3. Oil and Gas Tax Revision (SB 227)
Dunleavy’s fiscal plan will raise the minimum production tax rate from 4% to 6% for a five-year period beginning in January 2027. The production tax floor would revert to 4% in January 2032. The estimated average annual revenue increase would be $131 million.
The plan also enacts a 15-cent-per-barrel fee for Alyeska Pipeline to support operations, maintenance, and response on the haul road and along the pipeline. Maintaining this critical infrastructure is paramount to the State and the businesses that rely on these lifelines.
4. Seasonal Sales Tax (SB 227)
Governor Dunleavy’s fiscal plan introduces a variable, seasonal sales tax. The tax is aimed at capturing the spending of millions of individuals who visit our state and utilize Alaska’s services currently at no cost to them.
The state sales tax rate would be 2% October through March and 4% April through September starting in January 2027. The estimated average annual revenue increase is $730 million.
The sales tax would be eliminated in January 2034.
5. Elimination of the Corporate Income Tax (SB 227)
The Governor’s fiscal plan eliminates the Corporate Income Tax in 2031. While this would reduce the amount of revenue collected by the State, it will provide stronger footing for the private businesses operating in Alaska creating a more competitive business climate. The elimination of the corporate income tax will allow Alaskan businesses to retain more of their earnings they will then be able to reinvest into the company by advancing new projects or expanding business operations.
6. Government Sunset and Reauthorization (HB 274 / SB 222)
The Governor’s fiscal plan legislation includes a provision that will provide a regular opportunity to review the efficacy of state agencies and determine if those agencies should be terminated, continued, or reorganized to better serve the public.
The Governor will also be introducing legislation to establish a statutory revenue cap starting in FY 2027. Any surplus revenue the state realizes beyond the revenue cap would be split 50-50 between the Constitutional Budget Reserve Fund and the Permanent Fund.
A revised 10-year plan with the Governor’s fiscal plan incorporated can be found on the OMB website.
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