Gov. Mike Dunleavy proposed a state budget Wednesday, Dec. 11 that would rely heavily on savings, after a push for deep cuts during his first year in office resulted in fierce public backlash that fueled a recall effort.
The new proposal leaves room for discussion on what services the state should provide and how it should pay for them, Brett Huber, a top adviser to the Republican governor, told reporters in Juneau.
“It’s the governor’s job to help lead us through this discussion and make sure all Alaskans are represented,” he said, adding that revenues and spending “at some point have to come in line in a sustainable manner, and I think everything’s on the table in that discussion.”
Dunleavy wants lawmakers to look at formula programs seen as cost drivers, which could include Medicaid and education. Brian Fechter, with the Office of Management and Budget, said the governor’s office currently isn’t planning to introduce legislation proposing specific changes but expects to engage with the Legislature on the issue.
Dunleavy told reporters he is not proposing cuts to K-12 education but plans to roll out initiatives aimed at improving student outcomes.
He plans to continue to push for constitutional amendments addressing issues such as a spending limit.
The state, long reliant on oil revenues, has been using earnings from its oil-wealth fund, the Alaska Permanent Fund, to help fill a persistent deficit. New oil price and production estimates for the current budget year are lower than forecast earlier this year.
A 2018 law seeks to limit withdrawals from earnings for government expenses and the annual check paid to residents as a dividend. That limit for the next budget year, starting July 1, is $3.1 billion.
Dunleavy proposes paying a full dividend in line with a decades-old calculation last followed in 2015. Lawmakers, many of whom argued the formula is unsustainable, approved a permanent fund dividend that came out to $1,606 this year. Had the formula been followed, the check would have been $2,910, the Department of Revenue has said. Dunleavy maintains the rest of that amount should still be paid.
There is a citizen effort underway aimed at qualifying for the ballot a proposed increase in taxes on legacy oil fields. The state has no personal income or statewide sales tax.
Dunleavy said the budget outlined Wednesday would use about $1.5 billion from the constitutional budget reserve, one of two reserve funds that have been drawn down in recent years as lawmakers have struggled with how to resolve the deficit. As of Oct. 31, the constitutional budget reserve was valued at about $2 billion, according to the Department of Revenue.
Senate Minority Leader Tom Begich, an Anchorage Democrat, said Dunleavy’s budget proposal doesn’t appear as “draconian” as the one Dunleavy previously proposed but said it lacks long-term fiscal stability and vision.
Begich, in a statement, said oil-tax changes “are a must for Alaska’s long-term fiscal sustainability.”
House Speaker Bryce Edgmon, an independent, said there won’t be much support in the Legislature for “essentially depleting” the constitutional budget reserve. He said he thinks lawmakers will take a more “prudent approach” to funding essential services and a “reasonable” dividend that might require some level of draw from the reserve fund.
Edgmon said it’s hard to say what shape any revenue debate might take during the session starting in January. He said Dunleavy seems to be pushing some of the decision-making into the laps of Alaskans and lawmakers. Dunleavy’s proposal basically punts on the revenue issue, he said.
Anger over deep cuts proposed by Dunleavy for the current-year budget and subsequent vetoes helped fuel the recall effort. Dunleavy later agreed to reverse or moderate some of the cuts, including the level of cuts to the University of Alaska. Some targeted Medicaid cuts may not be achieved this year.
The courts are expected to decide whether the recall push can advance to a second signature-gathering phase.