OMB outlines governor's FY2027 budget to House Finance Committee, flags $346M shortfall and Feb. 3 supplementals

Juneau — Office of Management and Budget Director Lacey Sanders presented the governor's FY2027 operating and capital budget to the Alaska House Finance Committee on Jan. 23, telling lawmakers that weaker oil prices and carry‑forward supplementals produce a significant budget gap and that supplementals — including a Medicaid funding request — will be transmitted to the legislature on Feb. 3.

Sanders said the fall revenue forecast showed an oil price of $65.48 per barrel (down from prior spring assumptions), reducing state revenue by about $193 million compared with earlier projections. After accounting for $294 million in supplementals included in the December package, Sanders said the combination of lower oil revenue and supplementals results in an overall projected shortfall of roughly $346 million compared with the prior baseline. "We are looking at a total deficit overall of $346,000,000," Sanders said during the committee hearing.

Why it matters: Alaska's unrestricted general fund projections and the governor's decision to include the statutory Permanent Fund Dividend (PFD) in the FY27 proposal affect how much the administration must draw from savings. Sanders said the budget includes a draw from the Constitutional Budget Reserve Fund (CBRF) and that the governor's FY27 package reflects the statutory dividend, calling the package "a slim budget" that focuses on contractual and statutorily required spending.

Key fiscal actions and timing
- Medicaid supplementals: Sanders confirmed that the Department of Health transmits a Medicaid projection after the governor's budget release and that a supplemental for "34‑point‑something million" in Medicaid cost overruns will be included in the governor's supplemental transmittal expected Feb. 3, with an updated projection due to the legislature on Feb. 15.
- Supplementals process: Sanders reiterated that the governor must transmit supplemental requests to the legislature on Feb. 3 and that OMB will follow up with committee staff once they are finalized.

Program and departmental highlights
- Administration and personnel: The FY27 budget incorporates a phased implementation of a statewide information technology classification study and reallocates positions, with the Office of Management and Budget estimating implementation costs and the Department of Administration leading the effort. Sanders said Shared Services of Alaska (SSOA) accounts payable and some payroll functions will be returned to agencies; she emphasized positions are being reorganized rather than newly created.

- Department of Agriculture transfer: The December budget transfers funding and positions from the Department of Natural Resources to a newly created Department of Agriculture. Representative Hannon noted a court order regarding Executive Order 01/1937 and said the department "does not legally exist" while an appeal is pending; Sanders said the governor has appealed but OMB will not amend the FY27 budget at this time.

- Disaster and fire funding: For the Department of Military and Veteran Affairs, OMB proposes a $40 million supplemental deposit and a $33 million base FY27 deposit (about $24 million in unrestricted general funds) using a 10‑year average to estimate disaster funding needs. Sanders also described a $47.5 million fire suppression request and said two disaster declarations this year totaled about $55 million.

- Capital budget and federal matches: Sanders described a conservative FY27 capital package focused on federal matching requirements, with approximately $128 million in general fund match (about 82% of the capital budget) and emphasis on transportation, public facilities and housing programs administered by the Alaska Housing Finance Corporation (AHFC).

- Public safety and equipment: Body‑worn and in‑car camera operations previously treated as capital have been moved to the operating budget for ongoing maintenance and replacement; Sanders also described a $550,000 increase for law enforcement and village police training and certification support.

Committee members' concerns and follow‑up requests
Lawmakers pressed OMB for additional detail on supplementals, the list of projects covered by deferred maintenance funding, the difference between a five‑ and ten‑year disaster average, and specific maintenance plans for the Dalton Highway and the Fairbanks Pioneer Home. Sanders agreed to follow up with detailed lists and statistics where available and said OMB and agency staff would provide additional information to committee members.

Quotations
- Director Lacey Sanders: "We are looking at a total deficit overall of $346,000,000."
- Sanders on supplementals timing: "On February 3, I anticipate that we will be sending a bill over to you with any costs associated with supplementals, and that will include the Medicaid item."
- Representative Hannon on Department of Agriculture legality: "There is a court order that says [the Department of Agriculture] does not legally exist."

What comes next
Sanders said the administration will transmit supplemental requests to the legislature on Feb. 3 and provide updated Medicaid projections on Feb. 15. The House Finance Committee's next meeting is calendared for Monday, Jan. 26 at 1:30 p.m.; the hearing adjourned at 2:51 p.m.

Reporting note: The article is based solely on testimony and exchanges recorded in the Jan. 23 House Finance Committee hearing; all direct quotations are attributed to speakers who appear in the committee transcript.