Gov. Dunleavy introduces budget with larger PFDs, with cuts to come

Then-candidate Mike Dunleavy talks to a group gathered at the Mendenhall Valley Public Library in September. He was elected governor last month, and his administration proposed a budget with full PFDs Friday. (Photo by Rashah McChesney/Alaska’s Energy Desk)

Gov. Mike Dunleavy’s administration introduced a budget for next year with a full permanent fund dividend of roughly $3,000 for next year. But the administration also made it clear that it will propose substantial spending cuts in the next two months.

The portion of the budget controlled by the legislature is $5.7 billion — slightly higher than the current spending plan. The proposed budget would cover the 12 months starting this upcoming July.

The budget would set PFDs using the formula used from 1982 until 2015. The budget doesn’t include funding to pay back residents for the reductions in dividends from the last three years. Dunleavy campaigned on restoring these payments and could propose the money as an amendment or separate legislation.

The budget includes a $1.6 billion deficit for next year, on top of a $263 million deficit for this year. Slightly less than half of the deficit — $770 million — is attributable to paying higher dividends than the $1,800 PFD that former Gov. Bill Walker proposed before he left office. The rest of the deficit is the result of Walker’s administration projecting higher oil prices at $75 per barrel, based on their peak levels in October. Dunleavy’s administration projects prices at $64 next year, only slightly higher than current prices near $62.

“The Dunleavy administration is all about truth in budgeting,” Revenue Commissioner Bruce Tangeman said in a statement.

State budget director Donna Arduin said all state spending is on the table in the coming weeks.

“The state must learn to live within its means and we get there by making the tough spending choices,” Arduin said in the statement.

The budget will be sent to a legislature that is unsettled. While the Senate has organized with a Republican-led majority, the House has a near-even split between Republicans who want to organize a predominantly Republican majority and those who want either a mostly Democratic majority or a bipartisan coalition.

After the legislature passes a budget, Dunleavy will be able to reduce it with line-item vetoes. But he won’t be able to add items to what the legislature passes.

Updated revenue figures project a slight increase in North Slope oil production, which would rise slightly more than one percent, to 533,000 barrels per day next year. It would then flatten out to roughly 500,000 over the next decades, with new production offsetting some of the previously projected declines.

Permanent fund investment revenue is expected to rise $200 million, which will offset some of the drop in oil prices. This revenue is based on a law enacted this year that draws roughly five percent from the permanent fund each year from fund earnings.

Andrew Kitchenman

State Government Reporter, Alaska Public Media & KTOO

State government plays an outsized role in the life of Alaskans. As the state continues to go through the painful process of deciding what its priorities are, I bring Alaskans to the scene of a government in transition.

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