Ahead of his budget announcement Wednesday, Alaska Gov. Mike Dunleavy sat down with Daily News reporter James Brooks for 20 minutes to discuss why he believes the state needs radical budget reconstruction and to talk about his beliefs regarding state spending and the proper role of the Permanent Fund dividend. It was one of several interviews with Alaska news media ahead of the budget announcement. He was joined by state budget director Donna Arduin in the governor’s Capitol office in Juneau. The transcript has been slightly edited for clarity.
ADN: Well, so did you want to kick things off or do you just want me to ask questions?
Gov. Mike Dunleavy: I guess I can just start by saying you know we’re building this budget from the ground up. We’re doing something that hasn’t been done in years, maybe ever, here in Alaska, and that is we’re looking at every service, every program to see — are these services a program that touch all Alaskans that are considered core services. And then we’re building that up to our expected revenue, and our expected revenue is $4.6 — $4.6 billion dollars UGF/DGF (undesignated/designated general fund dollars) is what we’re looking at. And so we don’t take the position we’re cutting back, because this is our budget. So we’re building a budget.
[Story: Governor says his plan to cut $1.6 billion from the state budget will focus on ‘core services’]
ADN: Why does the budget need to be less than it was last year?
Dunleavy: Our expenditures are out of whack with our revenues. We’re spending more money than we take in. So we’ve been quote deficit spending for years now. We’ve drawn down $14 billion in savings. I think we’re down to $2 billion in the CBR (constitutional budget reserve) and the only thing left is the (Alaska Permanent Fund) earnings reserve.
ADN: Why reduce services rather than the Permanent Fund dividend?
Dunleavy: Because we believe that the Permanent Fund dividend is a transfer to the people of Alaska. We believe that’s a separate account managed separately for future Alaskans. The PFD has been part of the Alaskan fabric for decades and it’s just our philosophy that people spend money better than governments. So it’s a transfer to the people of Alaska. I’d like to keep that transfer in place and allow the people of Alaska to decide how they want to spend their money.
ADN: OK. My understanding is that in past years one of the things that the (Senate) Finance Committee — which I know you ran into — was that there’s a lot of programs that are statutorily required. I’m presuming you’re gonna have legislation that’s coming up —
Dunleavy: Yes, we are.
ADN: How many bills, or what’s that going to look like?
Dunleavy: We’re going to start out with approximately what, 25?
Donna Arduin: 25.
Dunleavy: Twenty-five bills. And this is going to be a continuous improvement process. To me, this is not just the end of it. This is the beginning of realigning government and state services and focus so that we are funding and supporting what we really need as a state as opposed to what we really want. But yes, we’re starting out with 25 bills.
ADN: OK. Why is the Permanent Fund dividend a need rather than a want?
Dunleavy: Because I believe if I could wave a magic wand I would have had the PFD decades ago coming out as a direct transfer to the people of Alaska from the Permanent Fund Corp. Again, I mean, there’s lots of philosophies on the PFD, but I believe that the people of Alaska will spend their money better. I believe that’s their money. We intercept all the oil tax money the state does. We intercept it into the state coffers one way or another. Municipalities do as well. From the pockets of the people of Alaska. If you believe that it’s a government by the people, for the people, then in this state these resources belong to the people, and the government’s a construct to manage affairs that the people of Alaska agree that we should manage, to the Constitution. But I don’t believe that every penny is fair game for the state. Just the opposite. We should be very, very careful on the amount of money we take out of the private economy, what little private economy we have, and out of the pockets of the people of Alaska. I believe that people of Alaska make better decisions on their money, whether it’s repairing their car, buying fuel oil, hospital bills. They’ll make better decisions that are specific to them. We take that money, that PFD, out of their hands and bring to the government and we decide what’s best for them? Kind of runs, I think, counter to the philosophy of what America is built upon and what I believe in.
ADN: Is it — does this come from the idea of collective ownership, of the state’s natural resources?
Dunleavy: The constitution certainly contributes to this situation. Absolutely.
ADN: OK. Because I know Senator Bill Wielechowski has ideas similar to yours. He also has it goes a little farther and says hey, the oil companies should not be taking as large a proportion of that collective ownership. Where do you guys split on that that idea?
Dunleavy: I believe that — I believe that the people of Alaska should be as free as possible to retain their money and spend it. When it comes to our wealth, we have to make sure that we find that sweet spot so that we have the expertise of these companies wanting to come to Alaska because they can make a profit investing in a high-cost area and providing us with with revenue as a result of their their work. So we’ll probably seem a little different on that issue, but I’ll have to hear more about where Sen. Wielechowski wants to go, but I’m a private enterprise guy. I’m a small-government guy and I’m an individual — I believe in the individual.
ADN: Obviously the the idea of private enterprise and all that — I’m trying to figure out how to word this correctly without going into the details of the budget — does the budget affect oil taxes or those tax credits that he’s talked about?
Dunleavy: We are not contemplating any changes in taxes for anyone or any entity.
ADN: OK, gotcha. Any fees or service charge changes?
Dunleavy: I don’t believe so. No.
ADN OK, because that had been brought up before as a possibility, so I figured I’d ask.
Dunleavy: I mean I just gotta make sure, because not officially from this: No there’s not.
ADN: OK. Sounds good. What have you done to prepare lawmakers? How have you talked to them about what’s coming up?
Dunleavy: Talking to folks individually. They also followed the campaign. They have an idea that — they basically know what we are going to do because we, we promise to do what we’re going to do, and that is get our government expenditures in line with revenues, focusing once again on core services that are delivered to most Alaskans. Are you picking up on that, that folks are expecting something different on February 13?
ADN: I think that folks don’t know what to expect what will be included in that $1.6 (billion) because there’s a lot of — whether it’s privatization or whether it’s service cuts or just not doing things, that type of thing. So I think folks are like — I don’t know what to think yet. You’ve said before that you see that the Permanent Fund dividend as has something and — “follow the law," I think is the phrase that you’ve used....When it comes to services, obviously there’s legal obligations on that. Why is that particular law more important than the other laws that require service.
Dunleavy: What laws won’t I follow?
ADN: Well, you had said that there were 25 bills coming out to change statutory obligations. I had understood that the Permanent Fund dividend is also a statutory obligation. So why change those obligations rather than the dividend?
Dunleavy: Well, we want to. We’re changing those obligations because we want to effect the change in law through the process. That’s what we want to do. For example, I was opposed to SB 26 when I was in the Senate, but it’s now the law on the books, so we’ll follow that law just like the calculation for the dividend is on the books so we will follow that law. If there’s to be any changes to that POMV — excuse me, the Permanent Fund or the PFD, It’s my philosophy that the people should be part of that change through constitutional amendment. Statutory changes, we’re running them through, we’re actually putting a lot of bills together to change the law so we’re doing everything we can to follow the laws.
ADN: OK. You said SB 26 is the law. You’ve also proposed the retroactive payment thing which would go above the SB 26 draw. So can you reconcile that?
Dunleavy: Yes, yes. SB 26 is the law moving forward for your current calculations of your dividends. We believe that there were portions of previous dividends withheld by government, contrary to the law, that sit in the ERA right now. We want to fix what we believe was broken in righting what we believe was a wrong. And so we would, yes, we would, we would. Our law would have us go in and get a draw from the ERA for those dividends, only those numbers that would have been distributed as they should then by law, if I was governor at the time.
ADN: OK, I see what you’re saying on that. Moving — like obviously, the legislature is going to get involved in this process. They’re going to have different opinions on this. What happens if at the end of the session if they don’t return a budget that’s balanced? If they say, “Hey, we’re going to look to the earnings reserve or the Constitutional Budget Reserve to balance”?
Dunleavy: Right. We’ll have that discussion when that occurs. We will look at that, that budget in light of our philosophy. What my campaign promises, I think, are very important, and what’s best for Alaska moving forward. But I can tell you that the framers of our constitution put in place a process for both the legislature and the governor for times just like this. And if it comes as result, as a result, that the budget is out of whack with its expenditures, we have tools available to us in the executive that are embedded in the constitution that they discussed, they vetted, they talked about, back in the early ’50s, and we may employ those tools to get our budget in balance with our revenues.
ADN: OK. So you would — you’re not afraid to veto stuff.
Dunleavy: I’m not afraid to use any tool we have, including the veto, to make this right.
ADN What happened if they decide to cut the Permanent Fund dividend?
Dunleavy: It’s a good question. I would hope they wouldn’t do that. I think people of Alaska would certainly disapprove. We’re going to have to cross that bridge when we come to it.
ADN: Understood. What’s your — I mean, in a scenario where this happens, the spending cuts happened...
Dunleavy: Not spending cuts, there would be a smaller budget — but I understand what you’re saying.
ADN: ...and then next year, oil prices go down. I mean: More of the same next year? Do you do the bottom-up building it over again?
Dunleavy: I mean will we will have to re-evaluate that. We’ll have to re-evaluate that scenario if our oil prices drop. That’s a real possibility. But again, it’s, I believe it’s the administration’s obligation to make sure that we propose a budget that’s in line with our revenues.
ADN: How do we get away or, do you think we can get away from that fluctuations in oil prices?
Dunleavy: We need to diversify our economy. We’ve talked about this for decades, but we really do suffer from what they call Dutch Disease more, probably more, than any other state, even maybe, maybe other countries as well. We become so narrowly focused on oil that we live or die by it. And so what we’ve done as I mentioned in the State of the State: We’re putting together a team that is going to market Alaska to the world. We believe that our location on the globe, that our quality of life, and not just our resources, but our proximity to Asia and Europe afford us, I think, an advantage over some states. If we just take advantage of it we have some communities in the state of Alaska — Southeast Alaska for example — which the electrical prices are very affordable compared to places in California or other states. So we believe that we have not marketed Alaska to non-traditional, non-oil-traditional industries and investments, so that’s what we’re going to do. We have to diversify and we have to bring in more, more workers and more different types of industries. You look at a place like Dubai, Middle East was a pearl-diving port. I think 5 percent of its portfolio is oil. It’s one of the most dynamic city-states on the planet. It’s continually growing because of its philosophy and its policies. I think we have much more to offer than a place like Dubai, personally. And so we’ve got folks working on it to diversify the economy.
ADN: On a broader question: How are you determining what folks want? What residents of the state, what citizens want out of their government? How are you —
Dunleavy: I think a lot of that has been determined by the constitution and also the traditional reach of programs. Public safety, they want public safety. They want the transportation, they want management of natural resources, they want education. So we’re we’re focusing our budget on those core areas.
ADN: Is there any kind of process that you followed when when doing that building from the bottom up as you said? How were you making those choices? What — who’s involved, that type of thing?
Dunleavy: So again, we got in Dec. 4, we hit the ground running. We looked at our revenues. That’s where — we’re being guided by our revenues and how how we structure our expenditures, our services, our core services. Those core services, I think, are recognized by everyone, not just in our state but nationwide, as to the functions of what a state government should be. So we’re going back to those core services, funding those core services, to make sure that they function and then whatever, whatever room we have left between expenditures and revenues, we’ll take the next step. The next step would be those programs and services: Do they still impact a large percentage of Alaskans?
ADN: How do you define core services? How did you define —
Dunleavy: Core services I think are defined by almost every state: education, public safety, management of resources, transportation. These are core services.
ADN: OK. Governor Walker used an executive order to expand Medicaid in the state. Do you intend to reverse that?
Dunleavy: February 13th will give you an an answer to that and any other questions.
ADN: OK. I wasn’t sure if health care qualified as a core service or not. I mean, based on your list it didn’t seem to. So I figured I’d ask: What is your vision for health care in Alaska?
Dunleavy: What we have to manage as a state, I want to manage it well. I want to make sure that every dollar has an impact on the constituents across the board. So that’s really our goal is to get the people in there that manage it. Well, that was one of our reasons we picked our health and social services person. I believe he’s good. He’s a good manager, he’s a great manager. He’ll be a great manager for that department looking at things differently. How do we deliver services differently? Look, for example we had this issue with API. We’ve heard that API has had problems for some time. We were determined to fix it. And I find it fascinating that some folks are upset that we’re trying to fix the problem. This administration is not going to let issues fester. We’re not going to mismanage people’s money, and we’re going to really look at the mission and what that’s supposed to do and make sure that the management and administration of these programs really have a positive impact on Alaskans.
ADN: That aspect, that takeover of API, some folks have said, hey this is probably going to cost more. If you’ve looked at ways to reduce costs how — where does that shake out?
Dunleavy: We feel this is the best option at this point to provide services and safety of both the patients and workers.
ADN: Akin to the public safety approach: You’re going to have to spend more money on that but you feel it’s worthwhile?
Dunleavy: Potentially. To get things under control. Like you said, especially with public safety, we know we have to ramp up to have the adequate requisite number of troopers, corrections officers, etc. We know that to get a handle on this. But we’ll see what, what expenses, what budget is needed to get API functioning in the manner that everyone expects it to.
ADN: What other programs are you looking to take an API-like approach on?
Dunleavy: That’s a process that is probably going to take more time in the spring and summer to answer, when we have more time to look at all of our agencies and all of our services, all of our functions of government. We certainly will take a look at that. We’ll have more press conferences once we start to identify those different areas.
ADN: What if the legislature isn’t able to get through all of the legislation that you had said — the 25 bills to start? I mean, in that scenario is this a two-year process, a four year process? I mean, you know it’s a lot of work.
Dunleavy: That’s hypothetical. We’ll cross that bridge when we come to it, and we know that that’s a possibility. It’s the way the system works, but we are fully prepared to be working our tail off every single day for the next four years and get this government’s spending under control and also to make sure that we have — we’re delivering services the way Alaskans believe we should. So it’s going to be a continual improvement process. Yes, Rome wasn’t built in a day but we’re going to see how this goes over the next 90 days, 60 days.
ADN: Is there anything the federal government could be doing that it’s not to help out in this process?
Dunleavy: Which process?
ADN: The budget process. I’m thinking of ANWR and I’m thinking of things like that.
Dunleavy: We’re pushing on, we’re pushing on fronts to be able to open up our state for more business. ANWR is an example. Moving west of Prudhoe Bay, We have some terrific things happening up there. We’ll be watching the permitting process is to see if a Trump administration can help us make sure that the process is not slowed down intentionally. We’re looking at Southeast Alaska and its timber resources to see if there is a way we could stand up the timber industry and put people back to work. So we’re looking at a number of things with this administration to see if we can put Alaska back to work with their help.
Dunleavy: I didn't know if you were referring to the budgetary process. Not much they can do about it.
ADN: Yeah I didn’t — there’s no scenario where some outside force comes in like the cavalry to save the day?
Donna Arduin: The commissioner of HSS will be working with and is already working with the CMS (Centers for Medicaid Services) in Washington to reform the Medicaid program.
ADN: OK. I didn’t know what options were out there to see if there was anything else that could help the process along.
Matt Shuckerow: Time for probably a couple more (questions) there.
ADN: What does success look like for you?
Dunleavy: Balanced budget.
ADN: Balanced budget?
Dunleavy: Balanced budget and a government that is responsible and functioning and delivering the services that we all believe it should.
ADN: Is there any scenario where you would support new or higher taxes?
Dunleavy: Doubtful.
Dunleavy: I see — I've looked at the graphs over the decades regarding Alaska and its revenue. When Alaska has taken in more revenue it has spent more. In the past several years $14 billion, James, is gone. I would ask people to show me what what do we have to show for it? Fourteen billion dollars, you would — probably could have provided — free electricity for folks forever. Potentially health care for some time. There's a whole list of things you could have done with that $14 billion. It's gone. So when Alaska comes into money, we don't handle it well.
Dunleavy: I would prefer to see a smaller, much more efficient government that's much more responsive to the core functions and then do everything we can to grow a more robust private economy where people are working. You've heard me say I have three daughters. They all work up at the mine. Red Dog Mine in the summer is a private endeavor. My oldest daughter's been up there for four years. It's a family wage. They make a family living wage that they make up there at that mine. That's not government. You saw when we had Triverus. We mentioned that in the State of the State, where Hans Vogel runs that out of Palmer. No tax subsidies, no tax credits, and he's growing this industry. Zoi Maroudas with Bambino foods (Bambino’s Baby Foods). No tax credits, no subsidies. They're growing their industry. I want to see a growing private sector like other states have, and a more efficient, well-run government. That's the goal. That's success.
ADN: How much of the state’s budget situation — the debate that we’re going to be having — do you feel is issues that you have forced, versus a situation that you were placed in? Because I’ve seen folks argue that there are four possible choices: new or higher taxes, cutting the dividend, cutting spending or looking at savings accounts whether the earnings reserve for CBR. So how much is it your choice versus a situation you were placed in?
Dunleavy: You know, I've enjoyed this job every day since I was elected. There's not a day that has not come by that I feel quite frankly blessed. This is a situation I believe that can really improve Alaska's prospects for the future.
Dunleavy: I believe that we, meaning the legislature and this executive, we have control over almost everything except that this time price, price of oil our one commodity. But we have control over whether we want to effect more production by our policies. We have control over the size of the budget.
Dunleavy: And so I may not have understood the question but —
ADN: How much is the rebuilding of the budget, the idea of — even if you feel differently — the idea of $1.6 billion in cuts are a result of choices you have made versus a situation you have found yourself in?
Dunleavy: It's hard to answer. It's a combination of factors.
Donna Arduin: You know, we started out Dec. 14 and told you that we are facing a $1.6 billion deficit, and that was based on a situation that was here when we arrived.
ADN: I mean, the idea is that with a $400 Permanent Fund dividend, there is no deficit though.
Dunleavy: Yes, there is no deficit, but I would caution you. Those two lines between expenditures and revenue will intersect for one moment in time given Alaska's history.
Dunleavy: One moment in time. And that's the fallacy. People believe that that's all you have to do and it's all over. That's not the case. That data line intersects for one moment, and then there's a gap that grows again and it won't be just the $400 dividend. It'll be a zeroed out dollar dividend and then it'll be an income tax and it'll be a sales tax. You just have to look at the history of Alaska and look at Illinois. Look at New York. Look at California. Look at some of those states. You never can have enough money for government is the philosophy that I want to avoid. If we can hammer ourselves in and really deliver core basic services well we won't need to be taking money from people's pockets or industry's pockets. We won't need to scare off these folks I'm trying to bring up to diversify our economy that are not traditional oil industries.
Dunleavy: That whole idea that all you need is this — Remember the bumper sticker, “Give us one more (oil boom)...”
ADN: “...and we promise not to screw it up again.”
Dunleavy: We had that bumper sticker was made prior to ’07. We got that opportunity. We just spent $14 billion. If we just spent $14 billion out of savings, why do you think this line is just going to — It just doesn’t work that way. That’s not what the history of Alaska shows.