Shortfall for Medicaid; higher pension costs create problems
Whatever else we want to say about state finances and the budget, the annual percent-of-market-value draw on Permanent Fund earnings now authorized in state law is a big deal. The amount paid now and projected forward exceeds state oil income. Now more than half the state budget, or the Undesignated General Fund portion of it, has a revenue source that is more predictable than petroleum, David Teal, director of the Legislative Finance Division, told a Commonwealth North task force last week. The finance division is nonpartisan and Teal, who is retiring at the end of the year, is respected for his straightforward advice.

The “POMV” draw this year is $2.9 billion and given the projected returns of the Permanent Fund the POMV should provide annual revenues of $3 billion a year and slowing rising. That looks secure for the near-term, but there are still challenges. The budget is currently showing a small surplus but that will swing to a small deficit when supplemental payments are approved in the spring. A $75 million shortfall in Medicaid is now expected, Teal said, and a $100 million increase in pension payments will also be required. Also, several items this year are paid off-budget, such as the small state capital budget funded from savings (Constitutional Budget Reserve) and the new anti-crime programs financed with money from the Power Cost Equalization fund. These decisions, made last spring by legislators, will come home to roost. They mean the governor will face about $200 million in increases already baked into the budget. If Gov. Dunleavy aims to cut $300 million in FY 2021, he will start the year $200 million in the hole, Teal told Commonwealth North.