Internal Dunleavy administration document suggests more budget cuts to come

The administration of Alaska Gov. Mike Dunleavy has asked state agencies to begin planning for another year of significant budget cuts, according to an internal document obtained by the Daily News. The document was discussed Thursday during a public committee meeting of the Alaska Permanent Fund Corp.’s Board of Trustees.

“The target reduction for all agencies from FY2019 to FY2021 is 15%,” says a memorandum dated Aug. 28 from Donna Arduin, director of the Office of Management and Budget, to all commissioners and all state corporations. Its header indicates it was also received by Dunleavy Chief of Staff Ben Stevens and the top budget officials for each state department.

The 15% target includes money cut from the budget this year, but because the nonpartisan Legislative Finance Division (which works for the Legislature) and the Office of Management and Budget (which works for the governor) use different calculations, it is difficult to discern what additional cuts would be needed to meet that goal.

The impact on Alaskans is impossible to determine at this time because the source of the cuts has not been determined.

Arduin’s figure refers to state spending. It excludes federal dollars received and spent by the state, and it excludes the Alaska Permanent Fund dividend.

“We recognize that agencies have reduced their budgets over the last several years,” Arduin wrote, “but to bridge this gap, further reductions will be necessary.”

Matt Shuckerow, the governor’s press secretary, wrote by email that “the budget guidelines issued last week by the Governor’s Office of Management and Budget are part of a regular process administrations must undertake in order to develop a budget. The memorandum outlines preliminary guidance from OMB on what departments should begin reviewing ahead of the FY2021 budget process. The memorandum is to be viewed not as a directive, but as guidance.”

[Fitch downgrades Alaska again for state budget problems]

Budget figures disagree

Excluding the dividend and federal dollars spent by the state, OMB says this year’s budget calls for spending $6.06 billion of state dollars in the fiscal year that began July 1. Legislative Finance says the budget calls for $6.03 billion, a difference of almost $30 million.

OMB says state spending has declined $639 million, or 10%, since Dunleavy entered office, but that decline compares this year’s budget (a spending plan) with the actual spending from the fiscal year that ended June 30.

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Under Legislative Finance’s accounting, that’s not appropriate. Each year, the Legislature passes a supplemental budget to reconcile the state’s plan with what’s actually needed, and the scale of that supplemental budget needed this year is not yet known. OMB is comparing this year’s budget to last year’s budget plus a pair of supplemental budgets.

When Legislative Finance compares this year’s budget to last year’s budget at the same period in time, it comes up with a decline of $545 million, or 8.3%.

In either case, enacting a 15% budget cut before July 1, 2021, will require substantial budget cuts when the Legislature convenes in January.

Those cuts will not be evenly distributed — some state agencies escaped cuts entirely in the first year of Dunleavy’s administration, and if they are subject to the same standard, would endure significant reductions.

The Alaska Department of Law, for example, saw its budget grow by almost 2% in this year’s budget, according to Legislative Finance figures. (OMB figures show a smaller increase.) The budget for the Alaska Department of Corrections rose nearly 14%, in part because of tough new sentencing guidelines approved by the Legislature and governor. Additional increases are forecast.

The University of Alaska, on the other hand, is already planning several years of cuts that would meet the 15% goal, if regents, the Legislature and governor agree.

Shuckerow, by email, said the 15% target should not be taken as the administration’s sole consideration.

“In addition to outlining a targeted 15% reduction in department-level spending from FY19 to FY21 levels, the guidance includes criteria such as: evaluating core services, identifying and eliminating duplication, reducing regulatory burdens, and proposing statutory changes,” Shuckerow wrote. “As Governor Dunleavy has said he looks forward to working with Alaskans, our state agencies, service providers, legislators and stakeholders on a budget for the coming year that attempts to meet the needs of Alaskans within the prescribed 90-day session. Governor Dunleavy has only just begun the process to develop his FY2021 budget. He looks forward to unveiling a budget in December that reflects both the values of Alaskans and our state’s fiscal reality.”

[Donna Arduin: As Alaska’s budget uproar rolls on, a top Dunleavy adviser has seen it before]

Reductions may be difficult

Even if the 15% reduction is more of an aspiration, substantial reductions may be difficult for some state agencies.

During a Thursday meeting of the Alaska Permanent Fund Corp. board of trustees, Department of Revenue commissioner Bruce Tangeman, who serves as a trustee, said most of the state general funds in his department are in the tax division.

"This big of a cut will have a severe impact on the various tax types,” he said by phone after the meeting. “It’s early in the process. How we’re going to react to this has yet to be determined.”

The Alaska Permanent Fund now provides more revenue to the state treasury than all other taxes combined — including oil taxes. When the Arduin memo came up in discussion, trustees were debating the corporation’s budget and a proposal to pay bonuses to investment managers to meet specific goals. Those bonuses would help the corporation compete with Wall Street firms that can pay much more than the state-owned corporation.

But the administration is asking for a cut to the corporation’s budget, not offering an increase.

“We’re being asked to cut our budget 15%,” executive director Angela Rodell said.

“The Kilimanjaro that we’re all trying to scale here is that the state simply doesn’t have the money,” Department of Natural Resources Commissioner Corri Feige said as discussion of the bonuses continued.

The governor’s previously stated long-term goal is to balance the state’s budget without tax increases or reductions to the Permanent Fund dividend, but the memo indicates there may be some flexibility in that approach.

“Revenue ideas will also be considered,” it states, “including changes in your program taxes and fees, or tax cuts that could spur economic growth."

Shuckerow, when asked whether that represents a reversal of the governor’s position, said by email, “That section simply states that agency program ideas for revenue could be submitted for consideration.”

The memo concludes by outlining a tentative schedule for next year’s budget process. By the end of October, most departments will have their final budget requests in to OMB, which will craft the governor’s budget proposal. That proposal is due no later than Dec. 15.