Gov Proposes Budget With Deficit of $1.5B

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Created on Friday, 13 December 2024 14:59

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By ANDREW KITCHENMAN
Alaska Beacon
    Alaska Gov. Mike Dunleavy announced a state budget proposal on Thursday that  would draw down roughly half the amount remaining in the state’s budget reserve fund.
    “We’re going to follow the laws and we have the savings,” the governor said at a news conference announcing the spending plan. “That’s why you have the budget designed as it is.”
    The $16.8 billion draft budget for the 12 months beginning in July is $344 million more than the amount the state plans to spend in the current budget. The increase is due to $1.6 billion more in spending on the Permanent Fund dividend, the  estimated amount of which would be more than $3,800.
    When Dunleavy was asked about why he chose to draw from savings, he pointed to the requirements of state law.
    “The PFD’s in law, just like some of these other programs in law. You don’t have enough revenue. If you have savings, so, you have to make a choice as to whether you’re going to reduce education or reduce other aspects of the programs to get that budget balanced,” he said.
    Not including the dividend, the budget proposal includes $1 billion less in federal funding for roads and other items, and $205 million less in the state spending that’s most directly under the control of the Legislature. The spending decline matches a projected drop in revenue, with oil prices lower than the state previously forecast.
    While most state services would be funded at a similar level to the current budget, public education spending would drop by $213 million, primarily due to the fact that $175 million added to the current budget for school aid is not repeated in the governor’s plan.
    State budget director Lacey Sanders said the education budget does not include reductions, since the additional school aid was considered “one-time” spending when it was included in this year’s budget. Dunleavy and legislators have not reached agreement on the future of the formula used to determine the bulk of state spending on schools.
    Dunleavy said a roughly $200 million increase in school funding could be included on a permanent basis if he and legislators can reach an agreement on changes to state education laws.
Legislators respond
    Senate President Gary Stevens, R-Kodiak, said he was concerned that Dunleavy was repeating his approach from last year, which Stevens said would have harmed school districts and led to more funding for private schools. He also criticized Dunleavy’s proposal last year to focus on teacher salary bonuses.
    “We know that they need to be addressed,” Stevens said of teacher salaries. “But I’m not sure his approach is going to work in the Legislature.”
    Senate Majority Leader Cathy Giessel, R-Anchorage, said it’s disappointing the administration relies on savings for the budget as well as in its 10-year state plan. She and Stevens lead a majority caucus with five Republicans and nine Democrats.
    “As any family knows, repetitive spending from savings is not a plan,” she said in an emailed response. “The mentality that it’s ok to leave Alaskans with no savings within the next two years is disappointing. It puts the problem into the lap of the next Governor, for her to solve.”
    Other legislators who are more philosophically aligned with Dunleavy responded positively to the budget proposal. Senate Minority Leader Mike Shower, R-Wasilla, expressed hope in a news release that the Legislature would address a long-term plan to balance the budget.
    “The Senate Republican Caucus stands in solidarity with Governor Dunleavy in producing a fiscally responsible budget which addresses critical services and infrastructure, while exploring options to reduce the rapidly increasing costs of our state government,” said Shower, whose caucus is entirely Republican.
    Rep. Mia Costello, R-Anchorage, said in a news release that the Republican House minority caucus that recently chose her as its leader looks forward to the legislative session.
     “This session, we look forward to working with the Governor to craft a responsible budget along with meaningful legislation that will move Alaska forward,” Costello said. “We share his goals of achieving better educational outcomes, improved public safety, and working towards affordable, abundant, and sustainable energy for all Alaskans.”
Relying on resources for state revenue
    Dunleavy said his answer for future state revenue is to develop more of the state’s natural resources. He also expressed hope about President-elect Donald Trump’s effect on resource development.
    Dunleavy said the United States has always looked at the state for its resource potential. He noted that Alaska could pay off the $6.7 million the U.S. paid Russia in 1867  for Alaska with a half-day of oil production.
    “Just to put that in perspective, we also have tremendous amounts of other resources in Alaska: huge amounts of gas, huge amounts of rare earths — copper, lead, zinc, gold, silver. You name it, we’ve got it, almost unlike any other state. We have enormous amounts of potential farmlands, forests, waters,” he said. “We have everything we need here in the state of Alaska to pay our way to create a future for our kids and our grandkids, if we so choose to do that.”
    He proposed adding $50 million to the current year’s budget for the liquefied natural gas pipeline that’s been proposed to run 800 miles across the state from the North Slope. The total cost of the long-stalled project has been estimated at $44 billion, though a smaller portion to connect it to Southcentral gas consumers has been estimated at $10.7 billion.
    The total projected state deficit over the next decade is $16 billion, according to the Dunleavy administration’s 10-year plan. Some legislators have expressed concern that once the state’s main reserve account to cover budget deficits – the Constitutional Budget Reserve – is exhausted, the state may turn to the Permanent Fund. The size of the 10-year deficit is more than one-fifth of the $79 billion Permanent Fund’s size. 
    Previous Alaska governors have also pointed to more resource development as central to balancing the budget. When asked whether Alaskans should be concerned about the state’s reliance on resource development, Dunleavy said they should instead be excited by the possibilities.
    “If we unleash and we are not stopped or prohibited by the federal government from maximizing our resources, we’re going to have more oil in the pipeline,” he said.
    Neil Steininger, a former budget director for Dunleavy who now writes for the Alaska Political Report, noted that state law requires that the 10-year plan include ideas for balancing the budget in the long term. He asked his former boss why he didn’t include the legally mandated proposals.
    Dunleavy in turn asked Steininger if he was asking about introducing statewide sales or income taxes.
    “Again, I believe that the resource base of Alaska is a solution to the future,” Dunleavy said. “I believe an income tax on the people of Alaska, a sales tax on the people of Alaska, taking what’s left of the dividend from the people of Alaska — if that’s what’s going to happen, I would suggest that we all invest in U Haul, to be honest with you.”
    Dunleavy based his proposed Permanent Fund dividend on a formula in state law that the state has not followed since 2015. Legislators have not agreed on a dividend formula in line with current state revenue, and have funded the dividend at lower amounts. They have cited a need to preserve the fund’s value for the future.
Other budget items
    There are several other targeted spending increases in the proposed budget, including:
        In public safety, $2.4 million for an Alaska State Troopers post in Talkeetna; $1.3 million for three troopers to investigate child crimes in Kotzebue, Nome and the Northwest Arctic region; and $1.2 million for five new village public safety officers;
    $5 million for the University of Alaska Fairbanks in its effort to be classified in the highest tier of research universities;
    In energy development, $6.5 million for the Bradley Lake Hydropower Dixon Diversion Project and $6.3 million in renewable energy project grants;
    In transportation, $4.2 million for Copper River Highway improvements; $2.5 million for Dalton Highway heavy maintenance; and $18.1 million for coastal resilience improvements for infrastructure damaged by Typhoon Merbok, with $14.5 million in federal funds;
    $10 million for the Alaska Seafood Marketing Institute over three years; and
    In programs aimed at affordability; $11.5 million for the rural professional housing program; $10.1 million for the homeless assistance program; and $6 million for a child care assistance program.
    Stevens, who represents a Kodiak district reliant on the seafood industry, questioned whether the marketing money would be enough. He noted that Dunleavy vetoed $10 million for only one year for the current budget. He described $3 million per year as a “drop in the bucket.”
    “That doesn’t solve the problem the industry is facing,” he said. “The industry needs real assistance when it comes to marketing, so I’m quite concerned about that.”
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htttps://alaskabeacon.com/andrew-kitchenman
Reporter Yereth Rosen contributed to this article.

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