Dunleavy trims state budget by less than one percent this year

By SUZANNE DOWNING

June 25, 2026 – Gov. Mike Dunleavy vetoed nearly $90 million from Alaska’s fiscal year 2027 budget on Wednesday, trimming just six-tenths of one percent (0.58%) from the Legislature’s $15.6 billion spending plan, while continuing his pattern of keeping state spending in check.

The final budget, which takes effect July 1, totals approximately $15.6 billion, including $6.4 billion in federal funding. Although headlines will focus on the nearly $90 million in vetoes, the reductions were quite modest. The FY2027 budget is about $700 million smaller than last year’s $16.3 billion budget.

Dunleavy signed the budget just as global oil prices were retreating after months of unusually high prices triggered by instability in the Persian Gulf. Alaska North Slope crude sold for more than $100 a barrel for much of the spring, generating a temporary surge in state revenue that lawmakers quickly incorporated into the spending plan. By the time the governor signed the budget, however, oil prices had fallen back into the $80-per-barrel range, reinforcing the theory that the additional revenue was a one-time event rather than a new normal.

“This was an anomaly, not a trend, and it created both an opportunity and a responsibility,” Dunleavy said. “While the state realized additional revenue, those same price pressures placed a real burden on school districts, particularly in rural Alaska. This budget makes targeted, responsible use of a temporary revenue increase to stabilize school facilities and address energy costs.”

The governor left intact approximately $300 million in one-time funding for Alaska’s public schools that lawmakers approved this session. The funding is intended to help districts cope with higher fuel and energy costs while addressing deferred maintenance and school facility repairs.

With roughly 130,000 students enrolled in Alaska’s public schools, that one-time appropriation equates to about $2,300 per student.

The administration noted that rural school districts were particularly affected because they purchase heating fuel months in advance. Higher fuel prices also drove up freight costs, construction expenses, and maintenance costs for school buildings.

At the same time, Dunleavy vetoed funding for teacher incentive payments, Head Start, questionable infant learning programs, increased reimbursement rates for certain Medicaid services. He cut funds from a proposed study examining whether Alaska spends enough on public education.

He also vetoed approximately $20 million in one-time revenue sharing for cities and boroughs that lawmakers had approved using the temporary oil revenue windfall. With oil prices already falling, the governor’s action avoids committing local governments to spending based on revenues that may not continue.

In total, the governor’s vetoes preserved $57.8 million in unrestricted state general funds and another $31.7 million in designated general funds, federal receipts, and other funding sources.

The budget also provides $57 million for the Disaster Relief Fund and $60.6 million for the Fire Suppression Fund as Alaska heads into another wildfire season.

According to the governor’s office, overall state spending has grown by only about 1.4% annually during Dunleavy’s nearly nine years in office. Over roughly that same period, inflation has averaged approximately 3% to 4% annually, with Alaska experiencing particularly sharp increases during 2021-2023 when inflation reached 7% to 8% in a single year as a result of Covid policies.

That means the operating budget has generally grown well below the rate of inflation, meaning state government has become smaller over Dunleavy’s tenure.

“By exercising prudent and disciplined fiscal management, the Dunleavy administration has been able to provide essential additional funding to improve public safety and educational outcomes while keeping total budget growth to approximately 1.4% annualized over the past nine years,” the administration said.