Dunleavy vetoes budget items with plan to replace majority of cuts with federal funds

Alaska Gov. Mike Dunleavy briefs reporters at his Anchorage offices on March 11. (Photo by Nat Herz/Alaska Public Media)

Update — Andrew Kitchenman, KTOO & Alaska Public Media

Gov. Mike Dunleavy announced on Tuesday that he signed the state budget bill, and vetoed $210 million from specific line items.

And he called on the Legislature to pass additional economic stimulus, saying it’s important to infuse cash into the state’s economy.

“If we don’t do that, because we’ve stopped the economic machine to safeguard our public, we run the risk of really collapsing our economy,” he said.

Dunleavy noted state revenue has been declining, leading to the state drawing down savings. And he talked about the immediate economic consequences from the coronavirus.

The vetoes include $12.5 million less for the University of Alaska, bringing it to the funding level Dunleavy and university regents announced last year. He also vetoed all of the state support for municipal school bond debt reimbursement, but he said he expects to replace the money with federal support. He said the vast majority of the money he vetoed will be replaced with funding under the federal CARES Act.

“It’s a direct result of this virus and this shutdown,” Dunleavy said of municipalities’ revenue problems from residents losing their jobs.

The vetoes the administration didn’t list as being covered by the CARES Act funding include a $31 million reduction to Medicaid; $15.5 million to the Alaska Marine Highway System; $4.3 million to pre-kindergarten grants; $1.1 million to state employee travel; and $2.7 million for public broadcasting. The governor also vetoed a $1 billion transfer from the Alaska Permanent Fund’s earnings reserve account to the constitutionally protected principal of the fund.

The budget the Legislature passed was for $5.4 billion, including $680 million for permanent fund dividends of $1,000. That total was slightly less than the amount in the current budget, which included PFDs of roughly $1,600.

Dunleavy repeated his position that permanent fund dividends should only be changed with support of Alaskans.

Even with the vetoes, the administration projected that its main savings account — the Constitutional Budget Reserve — will be down to only $61 million by June of 2021. That would leave it with roughly one half of 1 percent of what it was in the account six year ago, before oil prices fell.

The signing comes at a difficult time for state finances. On Monday, the Department of Revenue forecast that the state would raise $1.3 billion less this year and next than it expected in December. This is primarily due to the drop in global oil prices, but the COVID-19 pandemic also is affecting state revenue.

The Legislature sent the budget to Dunleavy earlier than usual this year, as it wrapped up its work early due to the coronavirus. It recessed, rather than adjourned, leaving the door open to it reconvening by May 20, the last day of the session under the state constitution.

Original Story — Rashah McChesney, KTOO

Gov. Mike Dunleavy will be joined by members of his cabinet at noon for a news conference centered on next year’s budget.

Dunleavy has been considering a budget that lawmakers passed in the last week of March.

It includes roughly $5.4 billion in state spending, with funding for $1,000 in permanent fund dividends but no stimulus payments to help residents combat the effects of COVID-19.

But that budget is predicted to drain 70% of the cash left in the state’s main savings account — the Constitutional Budget Reserve. That means that next year, when lawmakers return to Juneau, it will be much more difficult to pass a balanced budget.

The ongoing impact of the crash in the price of oil and the economic slowdown caused by coronavirus-related closures of businesses statewide has caused an unprecedented fiscal crisis. That means that next year, lawmakers will likely have to answer difficult questions about how to balance the budget — whether through deeper reductions to the permanent fund dividend, cuts to government services, taxes, or some combination of each of them.