Dunleavy outlines approach ahead of big budget rollout

Gov. Mike Dunleavy leaves the House chambers in Juneau after delivering the annual State of the State address to the Alaska Legislature on Jan. 22, 2019.

Gov. Michael Dunleavy leaves the House chambers in Juneau after delivering the annual State of the State address to the Alaska Legislature on Jan. 22. Dunleavy will propose a budget on Wednesday with up to $1.6 billion in spending reductions. (Photo by Skip Gray/360 North)

Gov. Michael Dunleavy will propose a budget Wednesday morning that could include $1.6 billion in reductions to state government spending.

Dunleavy said his administration built the budget from the ground up — and with more information than he had when he was campaigning. For example, at a Juneau Chamber of Commerce debate in September, Dunleavy said he would seek $400 million to $500 million in cuts — much lower than the amount he’ll propose.

“I had no access at that time to the inside workings of government,” he said. “I was not part of the administration. Now that we see where we’re at, we understand where our revenues are at, we’re going to put together a responsible budget that have expenditures not exceeding revenues. And I think that’s what people wanted when I was running for office.”

Dunleavy is a Republican who’s been watching this session as the mostly-Republican House of Representatives has been unable to pick a speaker. (Editor’s note: House members appeared to reach a deal to form a Republican-led majority Monday evening, shortly after this story was published.) Some House members have said the budget could provide pressure for them to get going. Dunleavy said they should listen to those who elected them.

“There (are) folks that joined the Republican Party. They ran as Republicans. They ran on a platform. They got elected by their constituents,” he said. “I believe that their constituents are going to want to hold them to their campaign promises.”

Dunleavy would like to see the Legislature adopt constitutional amendments that would require public votes for any changes to taxes, permanent fund dividends or spending increases. He has not proposed a similar public vote on spending cuts, and he said there isn’t time to do that with this budget.

“These were the cards that were handed to us at this point in history,” he said. “We’re going to, once again, get the budget — we believe — contained, and then go to the people of Alaska. It’s a function of time and where you are at this point in (the) budgetary process.”

While Dunleavy’s budget would put money back into the economy by raising dividends by nearly $1 billion, the net effect will be to drain money from the state’s economy. But he said what he calls a “fiscal disruption” is necessary in order to avoid further reductions in state savings.

“I believe that the sooner we get out of this fiscal mess, the better it will be for the economy,” he said, “We just seem to be putting off the inevitable. Everyone I spoke to, there hasn’t been one individual, it doesn’t matter what political persuasion they are, where they live in the state of Alaska, or what their employment is – this includes state workers – they know we have to solve this issue.”

It’s unclear what type of reception Dunleavy’s budget is going to receive from state lawmakers.

Sen. Bill Wielechowski, a Democrat from Anchorage, said reducing state spending by $1.6 billion would be a huge hit to the economy. He’s among those who would have liked to have heard more from Dunleavy about the scale of the cuts during the campaign.

“People are just sort of wandering around … questioning where can you possibly cut $1.6 billion,” he said. “I think that would have been really a focal point of any election, and absolutely I think it should have been discussed.”

Wielechowski said he thinks the cuts will deepen the state’s recession.

“Let’s get the public more involved,” he said. “Because I think the public is not going to want to see education cuts, for example. I think the public, given the opportunity, would say we’re probably spending too much on oil tax credits, we’re probably not taxing the oil industry enough.”

To those who would like to see a balanced budget that includes contributions from other sources — rather than simply state spending — Dunleavy has ruled out taxes or PFD cuts. And he said the state must stop drawing down its savings.

“We had $14 billion, not $14 or $14 million, $14 billion disappear as a result of deficit spending,” he said. “And I would say at that rate, there’s no amount of tax or PFD that can keep up with expenditures or growth.”

Dunleavy said he agrees with Education Commissioner Michael Johnson that it’s time for the state to review the formula that funds public schools. But he wouldn’t say whether his budget includes a change to the formula.

Listen to a lightly edited version of the entire interview with Dunleavy below:

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