Gov. Mike Dunleavy is approaching the state budget from a completely different angle this year.
Rather than again proposing to cut more than $1 billion from state operations spending to help support full, statutory Permanent Fund dividend payments, the administration is proposing an ostensibly flat fiscal year 2021 operating budget of $4.5 billion in unrestricted general fund spending with a very large 2020 supplemental appropriation of more than $1 billion.
The supplemental fills gaps in Medicaid and wildfire response funding and would also provide for a second round of PFD payments this fiscal year in addition to the $1,606 each eligible Alaskan received this fall.
After major pushback from the public and majorities in the Legislature to his cuts-driven plan last budget cycle, the governor is asking Alaskans and their lawmakers to decide what they want their state government to be.
The 2021 budget stays within the 5.25 percent of market draw on the $65 billion Permanent Fund by pulling more than $1.5 billion from the Constitutional Budget Reserve, the state’s last remaining savings account.
As proposed, the plan would leave approximately $540 million in the CBR at the end of next fiscal year. It appropriates just more than $2 billion for PFDs.
Finance experts and many legislators have said the state should leave at least $1 billion in savings for responding to emergencies, such as natural disasters, and allow for easier day-to-day cash management.
Dunleavy acknowledged such a large draw from saving is not feasible in the long-term, but again said he wants finding alternative budgeting solutions to be a collaborative process.
“We have to have the Legislature decide what they want to look at going forward in terms of underwriting this budget,” he said in an interview.
He stressed that formula programs are adding more than $100 million per year to the state budget and without facing those ever-increasing obligations the state will not be able to balance its finances over the long-term.
“Quite frankly the state, the Legislature and the people have to decide, do they want a smaller government footprint or do the majority of Alaskans and this Legislature want to look at some other way to pay for government? That’s the discussion that has to take place this year and the Legislature has to be front and center on that because they are the appropriating body,” Dunleavy said.
The budget does not cut any state programs or services, he said.
The governor emphasized that his budget for the 2021 fiscal year, which starts July 1, is built on “fiscal discipline, honoring the law, truthful budgeting and keeping commitments.”
The budget proposal absorbs roughly $110 million in formula-driven increases to keep overall spending in line with current rates, according to Dunleavy.
It increases spending in the four agencies focused on public safety: the proposed budgets for the departments of Corrections, Law, Public Safety and the Court System are all up between 3 percent and 17 percent, according to information provided by the governor’s office.
“That’s just the cost of doing business if we want a safer Alaska,” said Dunleavy’s Senior Policy Advisor Brett Huber.
To offset that, the budget plan would cut spending slightly in the departments of Natural Resources and Commerce, according to Huber, who also said some funding priorities have been shifted in those agencies to allow them to focus on permitting development projects in a timely manner and growing Alaska’s economy.
Dunleavy said state agencies have also been able to wring efficiencies out of back office functions such as IT by eliminating redundancies, for instance, which will save the state “millions of dollars” per year.
State funding in the capital budget, which for several years has been just enough to capture federal matching funds, is reduced about 8 percent to $135 million. When designated revenues such as agency fees and federal funding are added in, the capital budget totals about $1.3 billion, according to the governor’s office.
The 2020 supplemental budget is being released now instead of during the legislative session — as has been historical practice — to give Alaskans a better picture of the state’s overall budget situation, Huber said.
The supplemental would draw an additional $815 million from the Permanent Fund’s Earnings Reserve Account to make another PFD payment of about $1,300 per eligible Alaskan. That would fulfill the fiscal year 2020 statutory formula PFD calculation, which has been one of the administration’s top priorities.
The second PFD payment would go beyond the $2.9 billion Permanent Fund spending recommendation in Senate Bill 26 for 2020, but the governor said he is comfortable with doing that in the short-term to make good on the full PFD obligation called for in law.
“The dollars still exist within the ERA that were not distributed. They’re still in the ERA and continue to make (investment) money,” Dunleavy said. “I understand that if there’s too great a draw over a long period of time that it certainly has a negative impact, but that’s a discussion we have to have on changing the law.”
The supplemental also calls for another $120 million in Medicaid spending after the Legislature and governor combined to cut the Medicaid budget by about $150 million last year.
“We believed that we could get farther faster through Medicaid reform than we could,” Huber said.
The administration originally proposed cutting state Medicaid spending by more than $225 million, but revised that estimate down to about $100 million during the middle of last session. Huber said the additional $120 million is carried into the 2021 budget plan as well.
The supplemental also includes $95 million to backfill wildfire suppression accounts following the unprecedented 2019 wildfire season.
Finally it funds an additional $6 million for the Alaska Psychiatric Institute and $5 million for the Pioneer Homes under the administration’s plan.
The governor’s plan will undoubtedly be revised by the Legislature, which starts its regular session in Juneau Jan. 21.