The Alaska Legislature kicked off its 2026 session on Tuesday with a gloomy outlook thanks to an already-bad fiscal picture, escalating global uncertainty and a litany of headaches caused by lame-duck Republican Gov. Mike Dunleavy.
Leadership for the Senate Majority, a bipartisan coalition of Democrats and moderate Republicans, said they expect it to be a lean year and their main goal will be balancing the budget, preserving savings and maintaining core services. They also said they plan to try to unwind much of Dunleavy’s unrealistic budgeting and attempt to override his veto of a bill to shift taxes for online businesses from other states to Alaska.
Attention is high for the state budgets. Dunleavy has proposed more than $1.8 billion in deficit spending between the current and next budget year. A vast chunk of that is due to his stubborn insistence on including an Alaska Permanent Fund dividend payout according to the statutory formula, which hasn’t been followed for the last decade.
Bringing the dividend down to the more accepted range of about $1,000 would bring the budget into balance, said Senate Finance Committee co-chair Sen. Lyman Hoffman (D-Bethel) during the majority’s Tuesday pre-session news conference. But, he warned that there are other costs that the governor didn’t include in the budget that need to be funded.
“I anticipate there’s going to be a lot of discussion this year on what the dividend should be, but I would assume from last year’s discussion that if we adopted a $1,000 dividend with the governor’s proposed budget, that would give us a surplus of about $150 million,” he said. “That doesn’t mean that money will be available because there are approximately in excess of $200 million as I see as items that have not been addressed in the governor’s budget.”
Those include $71 million in federal funding due to the state’s failure to meet a federal education funding disparity test, $47 million to address a Medicaid funding gap, and another $38 million for the state’s retirement system.
Facing the austere outlook, Senate President Gary Stevens joked that Hoffman was “such a downer sometimes.”
On the capital budget, the governor’s budget also doesn’t include any major school maintenance funding or University of Alaska maintenance and leaves major gaps in transportation funding.
“We’re gonna have another tight year. At some point, the dam’s gonna break,” said Senate Finance Committee co-chair Sen. Bert Stedman (R-Sitka). “We also have not talked about some of the agencies that are having extreme difficulties in meeting their fundamental goals and objectives.”
Dunleavy’s time in office has seen a sharp cutback in state jobs, leaving many agencies floundering in everything from social safety net programs to business licensing. The governor also instituted a strict hiring freeze, slowing all hiring to a crawl throughout the state. In December 2025, for example, the Alaska Marijuana Industry Alliance took the unusual step of pleading with the state to put a hold on all new licenses to give its limited staff time to catch up on a massive backlog of current businesses.
A report by the legislative auditor last year found that chronic understaffing throughout the state was leading to poor service delivery and sloppy accounting practices that could put the state at risk of losing hundreds of millions of dollars in federal grant funding.
Other budget gaps come from the governor’s vetoes of funding from last year’s budget. While legislators attempted to plan ahead for disasters — like last year’s Typhoon Halong, which displaced more than 1,000 Alaskans — Dunleavy vetoed it, but the costs still accumulated. That’s led legislators to face a roughly $300 million deficit in the current budget year, which could leave the state short of money unless legislators backfill the gap.
“The political game is that the governor could take big chunks out, claim he’s saving money,” said Senate Finance Committee co-chair Sen. Bert Stedman (R-Sitka) during the Senate Majority’s pre-session news conference on Tuesday about the governor’s veto of disaster relief funds, “and then when there’s a disaster, he just declares the disaster and spends the money and puts it in a supplemental. That’s what we want to avoid. We want truth in budgeting.”
While the budget is the big priority for the session, legislators will spend the early days of this year’s session addressing the governor’s vetoes from last year.
On Thursday, the Legislature is set to meet in a joint session to attempt to override the governor’s veto of Senate Bill 113, a bill to shift taxes for online businesses from other states to Alaska and one of the few revenue measures to have passed the Legislature during his time in office. Legislators had planned to meet on Tuesday, but Senate President Gary Stevens (R-Kodiak) said the governor had requested a few additional days to attempt to woo legislators into sustaining his veto.
The other major veto getting attention to start this session is his veto of $62 million in federal infrastructure matching funds. Those funds are necessary to unlock more than $600 million in federal funding, which would go to road and other transportation infrastructure projects throughout the state.
The window for the highway match veto, which centers on a dispute over where the money’s coming from rather than its use, has already closed, so legislators will have to restore funding through legislation.
While legislators had planned to use money from the Juneau Access Project — a costly mine-access project disguised as a poorly justified ferry terminal — and other languishing projects, the governor is a big fan of costly mine-access projects and is pushing the project ahead over the objections of pretty much everyone who doesn’t stand to directly benefit from it.
That means legislators will likely have to tap the state’s rainy-day savings fund, the Constitutional Budget Reserve, for the cash, a politically and literally costly exercise given the fund’s three-quarter vote threshold to access. Such votes usually require including minority caucus members’ spending asks, a move that drives up the price of legislation and further depletes the state’s already-depleted savings. To several legislators, it’s a mess of the governor’s making that they aren’t particularly enthusiastic about taking the lead on fixing.
“I don’t know what the governor intends to do to propose fixing this and coming up with the three-quarter vote to do that,” Stedman said. “We do have a deficit in this current fiscal year. And it is very difficult to deal with the three-quarter vote. They get expensive. So, we’ll wait and see what the governor’s proposal is to fix the mess he created.”
Lawmakers have been under heavy pressure from businesses and industry groups to restore the money, with many warning that the state of the 2026 construction season could be in jeopardy. Several warned that businesses will close if the work doesn’t hit the streets.
“I can’t stress that enough that the governor did create this issue by vetoing it,” Stevens said, “and we’re looking to him to help us resolve it.”