Alaska lawmakers worry Dunleavy’s budget relies too heavily on savings

Gov. Mike Dunleavy unveils his budget on Wednesday at the Capitol in Juneau, Alaska. (Photo by Rashah McChesney/KTOO)

Gov. Mike Dunleavy proposed a budget on Wednesday that depends on spending down state savings. And the possibility of reducing savings is a source of concern for at least some lawmakers.

Dunleavy did not repeat the call he made last year for spending cuts. Instead, he said he would look to Alaskans and the Legislature to work on solutions on how to close the gap between how much the state spends and what it brings in.

“It’s a 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,” Dunleavy said of the budget. “And that’s what our goal is.”

The governor spoke about his budget at the Capitol in Juneau, flanked by cabinet members and other senior administration officials. He spoke for 12 minutes before leaving for undisclosed meetings.

Dunleavy said he plans to hold meetings in communities around the state beginning in January to talk about the budget.

He noted that cutting spending in areas like public education and Medicaid would depend on changing state laws that set formulas for their funding.

“So over half of the operating budget is really not in my control to change,” he said. “If we’re going to change any of those formulas, it has to be done with partnership with the Legislature.”

Dunleavy said the state should pay out full permanent fund dividends under a 1982 state law. The proposed increase in dividends would account for most of the proposed $1.547 billion draw in state savings from the Constitutional Budget Reserve, or CBR.

The governor said full dividends should be paid as long as the 1982 formula is the law.

Members of both majority caucuses in the Legislature have said that full PFDs would violate another state law that limits how much the state can spend from the permanent fund. And lawmakers have been wary of relying on savings to pay for full dividends.

House Speaker Bryce Edgmon, a Dillingham independent, said he expects lawmakers to agree with the governor not to further cut the budget.

Rep. Bryce Edgmon, I-Dillingham. (Photo by Skip Gray/360 North)

“However, spending is only half of the budget process,” Edgmon said. “It appears that the governor is deferring to the Legislature on finding out a way of how to pay for it. And clearly we’re at a time now where we can’t continue to delay tough decisions into the future.”

Edgmon said he would be interested in the public feedback that the governor receives. But he also said that beginning the public discussions in January may add to the challenge of completing the legislative session on time.

Anchorage Republican Sen. Natasha von Imhof said the proposed draw from savings would leave the state without a cushion for emergencies, like natural disasters or even a slump in oil prices.

Sen. Nathasha von Imhof, R-Anchorage, co-chair of the Senate Finance Committee, sits at the witness end of the table, to explain SB104, a bill she introduced that would limit the amount of money the state can spend yearly, April, 10, 2019.
Sen. Natasha von Imhof, R-Anchorage. (Photo by Skip Gray/360 North)

“I am very concerned that this proposal drains our savings account, our CBR, below a fiscally prudent level,” she said.

The legislative session is scheduled to begin on Jan. 21.

Wasilla Republican Rep. Cathy Tilton said she wasn’t surprised that the governor didn’t propose cuts, after last year’s budget process. She said she supports his call for full PFDs.

“They want to follow the law,” Tilton said of Dunleavy’s administration. “And I hope that that’s something that all of our colleagues can support.”

Rep. Cathy Tilton, R-Wasilla. (Photo by Skip Gray/360 North)

Tilton said it’s unlikely that she’ll support spending from savings if the budget doesn’t fully fund dividends. The votes of Republicans in the House minority, like Tilton, will be needed to draw from the Constitutional Budget Reserve.

This budget was unusual in its reliance on savings, rather than including proposals for spending cuts or new sources of revenue. Dunleavy acknowledged that the state can’t continue to rely on savings, as he described the importance of getting input from Alaskans on the budget.

It appears that major changes will be necessary, even if the Legislature were to continue to fund dividends at the $1,600 level of the last two years. With $1,600 dividends, savings would only cover roughly three years of the current gap between state spending and revenue.