Alaska Gov. Mike Dunleavy on Friday proposed a budget that would cut state spending on government services, but would also pay out nearly $5,000 in permanent fund dividends.
It relies on drawing from the Alaska Permanent Fund’s earnings to both pay for most of state government and for two PFD payments. The total draw of $6.3 billion is more than twice the amount allowed under state law.
Dunleavy emphasizes the need to stabilize Alaska’s economy.
“We have thousands and thousands of Alaskans on unemployment,” he said. “We want to make sure that we’re not going to add to the unemployment rolls, but we’re going to do the opposite.”
The governor also proposed borrowing up to $350 million to upgrade the state’s roads, bridges, airports and other infrastructure.
The portion of the budget directly controlled by the Legislature — which is where Dunleavy’s budget will go next — would be $4.3 billion. It’s about $300 million less than this year’s budget.
His budget proposal would cut Medicaid by $35 million and public education by $21 million. It also would reduce spending on highways, aviation and transportation facilities by $13 million and includes a previously planned cut to the University of Alaska of $20 million.
Dunleavy said it’s important for the future of the state’s economy and the budget that Alaska develops its natural resources.
“There are folks that really don’t want that to happen,” he said. “They want Alaska to be one of the largest parks in the country.”
The governor’s budget includes full PFDs under the formula in state law, which would be roughly $3,000. In addition, it would pay out nearly $2,000 more, which is the difference between the amount under the formula and the amount Alaskans were actually paid this year. Dunleavy said the additional payment would put cash in the hands of Alaskans affected by the pandemic.
Dunleavy also proposed changing the dividend formula for 2022. Under the new formula, dividends would be roughly $2,300, which would be less than under the formula in current law, but more than Alaskans have received the last five years.
But Dunleavy said any change should be subject to approval in a vote by Alaskans. He also wants to amend the state constitution to require a public vote on any new taxes.
“If we really want to have a sustainable fiscal plan, you cannot ignore the people of Alaska,” he said. “You cannot ignore the very people that vote for us and send us here.”
Legislators from both chambers responded to Dunleavy’s proposal with caution.
House Speaker Bryce Edgmon, a Dillingham independent, said he thinks there will be support for a transportation bond. But he said there are time constraints when conducting a legislative session during a pandemic. That will limit the amount of time they have to consider Dunleavy’s proposals. He said he wishes the governor had approached lawmakers sooner.
“The Legislature in the upcoming session — because of the pandemic — is going to have one hand tied behind its pack,” Edgmon said. “It would have been very instrumental, I think, very helpful to have had discussions with the Dunleavy administration leading up to the unveiling of what appears to be a pretty ambitious agenda for what could be a highly compromised legislative session that’ll be very much focused on the budget.”
Sitka Republican Sen. Bert Stedman said it will take significant policy changes to reduce spending.
He said the Legislature should consider the effect of COVID-19 on Alaska’s economy as it weighs Dunleavy’s proposal. But Stedman also is concerned that the budget would draw more from the permanent fund’s earnings than the Legislature and the Alaska Permanent Fund Corporation have planned.
“We need to take a look at the budget in more detail,” he said. “But it does not go unnoticed that an overdraw of the permanent fund creates havoc on the fund itself, and it has impacts that go in perpetuity.”
The Legislature will consider the budget when it reconvenes, on Jan. 19.