Gov. Dunleavy proposes spending from savings to balance state budget and pay traditional PFD

JUNEAU — Gov. Mike Dunleavy has proposed spending from Alaska’s diminished savings accounts to balance the state budget, abandoning last year’s plan to erase the state’s financial deficit with deep spending cuts.

The governor’s new proposal, unveiled in Juneau with his cabinet, calls for some cuts to keep spending flat despite inflation and scheduled spending increases. The Alaska Legislature will consider the spending plan when it convenes in January, and lawmakers are expecting changes.

“This is a budget that’s going to be the springboard for discussions with the Legislature, with the people of Alaska, because we have to work together to form a budget that’s going to make sense for all of Alaskans,” the governor said.

Dunleavy’s proposed budget includes a 2020 Permanent Fund dividend estimated to be $3,170 per eligible Alaskan. The governor also plans to seek a supplemental payment of about $1,400 per person, equivalent to the difference between the 2019 dividend and the amount calculated under a 1982 law. Paying the supplemental dividend requires breaking a statutory limit on spending from the Alaska Permanent Fund, but the governor said the traditional 1982 formula is also in state law and has a much longer history.

“Until those statutes are changed, modified in some form or fashion, we continue to view the PFD as a transfer to the people of Alaska,” he said.

[Despite Dunleavy plan, Alaska legislators say big dividend is unlikely]

Spending cuts proposed by Dunleavy last year, plus hundreds of millions of dollars in budget vetoes last summer, deeply divided Alaskans and galvanized a campaign to recall the governor from office. Dunleavy said his proposed budget was shaped by feedback from a range of Alaskans in recent months.

“Last year, we rolled out the budget with $1.6 billion in reductions,” he said. "We had a conversation with the Legislature. The Legislature themselves saw the need for reductions. They agreed to several hundred million dollars in reductions. We vetoed further. We reduced further because we believe that the gap was just way too large This summer, this fall, we’ve had time to work with our commissioners, work with the people in the various departments, talk with folks across Alaska. Talk with groups that are recipients of our spending and our services and our programs. And so we put together a budget this year that reflects those discussions ...

“I plan on going out and having meetings with Alaskans in as many communities as possible starting in January to hear what their feedback is in terms of what did they want Alaska to look like going forward? What kind of programs do they want? What kind of services do they want? And how are we going to go about paying for those services?” the governor said.

Dunleavy’s proposal covers the fiscal year starting July 1, 2020 and is not effective unless approved by the Alaska Legislature. Last year, lawmakers largely rejected the governor’s ideas, leading to an extended series of special sessions.

Senate Minority Leader Tom Begich, D-Anchorage, said he was “cautiously optimistic” about the governor’s budget, calling it “nowhere near as draconian as last year.”

Asked whether the recall campaign against the governor might have influenced the governor, Begich was equivocal.

“What does the phrase ‘I’ve heard the people’ mean? I think that has to be part of the recall initiative. I think that has to be part of his listening tours. And I think that has to be the work of the Legislature,” he said.

Rep. Cathy Tilton, R-Wasilla, said “It’s not unsurprising the governor put forward a flat budget based upon the amount of resistance he faced in the last (legislative) session.”

Dunleavy left his budget news conference after about 10 minutes for what communications director Jeff Turner said was a prior commitment. When pressed, he did not explain what that prior commitment was.

In the governor’s absence, members of his cabinet answered questions.

Senior Dunleavy adviser Brett Huber said he doesn’t believe the shift away from budget cuts is an indication that there’s been a “change in course” by the governor.

Brian Fechter, chief policy analyst for the Office of Management and Budget, said the administration is not proposing any additional legislation alongside the budget. Last year, the governor proposed diverting some local tax revenue to state coffers in order to reduce the deficit.

Dunleavy chief of staff Ben Stevens said the governor also is not proposing any changes to the state’s oil and gas taxes. An in-progress ballot measure would increase those taxes on older North Slope fields.

According to a summary distributed by Dunleavy’s office, the proposal includes fully funding K-12 education and the court system, and increases spending on prisons, Pioneer Homes, public safety and transportation.

Other departments, such as the Department of Administration and Department of Labor and Workforce Development, are scheduled for modest decreases. State support for the University of Alaska would be cut $25 million, the largest reduction to any state agency. University leaders have agreed to a three-year series of budget reductions.

Funding for the the plan is not sustainable beyond a single year, the governor’s 10-year plan states, because it calls for spending $1.5 billion of the $2 billion remaining in the state’s Constitutional Budget Reserve.

It remains unclear what the governor and Legislature plan to do afterward, but the 10-year plan offers five possible scenarios, including several that involve new or higher taxes. Dunleavy has previously said he is opposed to increased taxes, but when speaking about possible options on Wednesday, Huber said, “I think everything’s on the table in that discussion.”