Governor proposes flat budget that spends heavily from savings

 Gov. Dunleavy announces the FY 2021 budget on Dec. 11, 2019. (Image from Dunleavy Facebook Page) (KTUU)
Gov. Dunleavy announces the FY 2021 budget on Dec. 11, 2019. (Image from Dunleavy Facebook Page) (KTUU) (KTVF)
Published: Dec. 11, 2019 at 3:40 PM AKST
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Gov. Michael Dunleavy has set up a showdown with the Legislature after proposing a flat budget for the next fiscal year that would spend heavily from savings.

In contrast to the governor’s budget proposed in February that had $1.6 billion in proposed cuts, Dunleavy’s December budget for the next fiscal year does not make major reductions to state services.

Education funding would be left untouched and state spending would increase by $24 million for the Department of Corrections and there would be an 18.3% increase for Pioneer Homes.

Nearly $800 million would be saved in fiscal year 2021 by the state not paying oil and gas tax credits.

The budget follows many of the governor’s fiscal priorities: it would deliver a full statutory Permanent Fund dividend in 2020 and back pay a $1,400 dividend payment for 2019 that was not paid by the Legislature.

To pay for his budget and the dividend, Dunleavy is proposing to spend $1.5 billion from the Constitutional Budget Reserve, the state’s main savings account that currently has roughly $2 billion.

The nonpartisan Legislative Finance Division has said that the CBR should have around $2 billion to pay for unexpected costs such as supplemental budgets. The supplemental budget for the ongoing fiscal year may be the biggest in the state’s history at between $200-$300 million with costs for firefighting and Medicaid.

The governor says a conversation will be had with Alaskans whether or not they want to pay taxes to make up for a revenue shortfall.

The proposed budget would also draw nearly $3 billion from the Earnings Reserve Account of the Permanent Fund to pay for dividends and state services. The ERA has roughly $12 billion and can be spent by a simple majority vote of the Legislature.

In 2018, the Legislature passed Senate Bill 26 that determines the amount that can be sustainably be spent from the ERA for state services and the dividend without endangering the Permanent Fund itself.

The governor’s proposed budget would not spend above that formula.

House Speaker Bryce Edgmon spoke at a Commonwealth North forum Wednesday afternoon, saying that the House majority was formed on the back of not overspending from the Permanent Fund.

Republican Senate President Cathy Giessel echoed Edgmon’s comments, saying that there is no interest in the Senate to unsustainably spend down the Permanent Fund or the CBR.

Giessel also spoke to the changing nature of Alaska’s fiscal situation. According to the state’s fall revenue forecast, the state would collect $2 billion from oil revenue and nearly $3 billion from Permanent Fund earnings.

“A non-renewable resource is being turned into a renewable resource,” she said.

Edgmon described that almost 60% of the state’s revenue in fiscal year 2021 could come from earnings from the Permanent Fund.

On Tuesday, the governor took to Twitter to say that “the people of Alaska need a real constitutional spending limit that works.”

Edgmon told the Commonwealth North forum that there was a real appetite in the Legislature to impose some sort of a spending limit either through statute or a constitutional amendment.

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