Sweeping budget lowers spending on schools, university, Medicaid, ferries

Office of Management and Budget Director Donna Arduin helps Gov. Michael Duleavy explain various aspects of his proposed state budget at a press availability in the Capitol in Juneau on Feb.13, 2019.
Office of Management and Budget Director Donna Arduin helps Gov. Michael Dunleavy explain various aspects of his proposed state budget at a press availability in the Capitol on Wednesday. (Photo by Skip Gray/360 North)
KTOO and Alaska Public Media’s Andrew Kitchenman spoke with Alaska Public Media’s Casey Grove about this story:

Gov. Michael Dunleavy’s amended budget proposal would cut spending across many state-funded programs. Public schools, the university, Medicaid and the ferry system are among the areas hardest hit.

Dunleavy said at the budget announcement Wednesday that the changes are needed to stabilize the state’s future. He said his budget makes sure the money the state spends matches the money it brings in — without drawing down savings, raising new taxes or making cuts to PFDs.

“We have to have a robust discussion, which I am looking forward to, as to what are our needs versus our wants,” he said. “What are the needs that impact the majority of Alaskans? And how do we want to pay for this going forward?”

The budget stability would come at a big cost — a $1.15 billion reduction in how much the state spends on the portion of the budget controlled by the Legislature. In addition, municipalities with oil infrastructure would receive $400 million less in property tax. That money would instead go to the state.

The amount public schools receive for each student would drop by $300 million, or more than a quarter. Many smaller school programs aimed at supplementing classroom learning would be eliminated.

Rep. Josh Revak watches Gov. Michael Dunleavy unveil his latest budget proposal on Wednesday, Feb. 13, 2019, in Juneau, Alaska. (Photo by Rashah McChesney/Alaska’s Energy Desk)

The state’s portion of the university budget would fall by $155 million, which would fall on the three main parts of the university: the various campuses of the University of Alaska Fairbanks, University of Alaska Anchorage and University of Alaska Southeast. That cuts nearly half of state funds. There actually would be an increase to the separate, local community campuses.

Medicaid would see a $271 million reduction, about a 40 percent state funding cut. The state is negotiating with the federal government how that would happen, with a focus on cutting payments to hospitals, doctors and other health care providers, and paying less for medical care to the roughly 48,000 Alaskans who receive health care from the Medicaid expansion that former Gov. Bill Walker implemented.

The Alaska Marine Highway System funding would be cut by $96 million, with funding ending at the end of the summer.

Dunleavy said he focused on funding services that affect most Alaskans. But certain services that benefit rural and coastal Alaska would see steep cuts.

The budget “is going to touch all Alaskans, no matter where they live, and no matter what they do,” Dunleavy said. “It’s going to be a different way of budgeting, and all Alaskans are going to have to pull together to make sure that we get through this process.”

Rural and coastal lawmakers — as well as education advocates — are already pushing back on it.

“It deepens the divide between the haves and the have-nots,” says Sen. Donny Olson, a Golovin Democrat, in a written statement. “It strikes rural Alaskans more acutely, forcing them to leave their communities and head to the metropolitan center. Many of these Alaskans will become homeless in Anchorage, adding to that socially marginalized population.”

Budget director Donna Arduin highlighted a series of moves to increase efficiency in state government, including consolidating procurement, human resources and investigations.

State funding for the Alaska State Council on the Arts — as well as all money for public radio and public television — would be eliminated.

Arnold Liebelt, a staffer in Rep. Sara Hannan’s office, looks over a newly-released budget from Alaska Gov. Michael Dunleavy’s administration with Ken Alper, former state tax division director and staff for Rep. Chris Tuck on Wednesday, Feb. 13, 2019, in Juneau, Alaska. (Photo by Rashah McChesney/Alaska’s Energy Desk)

The budget could be problematic for the state’s economy in the short term, according to economist Mouhcine Guettabi of the Institute of Social and Economic Research at the University of Alaska Anchorage, or ISER. ISER has studied the effect of various plans, and Guettabi said a $1.15 billion budget cut could reduce the number of jobs in Alaska by more than 10,000. That wouldn’t include the cut to municipal revenue through the oil property tax change.

The negative effects could be partially offset by about a 3,000-job increase from Alaskans having more money to spend from PFDs. Dunleavy has proposed a $920 million increase in PFDs, which Dunleavy considers to be separate from the budget. Dividends would be roughly $3,000, about $1,000 more than in any of the previous 37 years. On top of that, Dunleavy has proposed another $1,000 dividend payment to pay residents the amount vetoed by Walker three years ago.

The combined impact of the changes could eliminate 3 to 4 percent of the jobs in the state, Guettabi said.

Dunleavy said stabilizing the budget would help investment and grow the economy.

Guettabi agrees there will be benefits, but perhaps not on the scale as the losses. And while the Legislature works on the budget, he expects problems for the economy.

“It’s going to freeze it,” Guettabi said of the economy. “A lot of players that matter are going to sit on the sidelines, meaning there’s not going to be any hiring. Households are not going to be spending money. And so, because people are going to be waiting for that final (budget) number, and who’s going to actually feel the brunt of the pain.”

The Senate will start its work on the budget Thursday. The House still isn’t organized, but having the budget may put more pressure for that to happen. The governor’s office is unveiling a wide variety of bills and administrative orders to make structural changes to state government, to accompany the budget.

Watch the latest legislative coverage from Gavel Alaska:

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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