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Alaska Legislature

Dunleavy vetoes $444 million from operating budget

Alaska Gov. Mike Dunleavy reveals his budget vetoes during a press conference Friday, June 28, 2019 at the Alaska State Capitol in Juneau. (James Brooks / ADN)

JUNEAU — Gov. Mike Dunleavy on Friday cut $444 million from Alaska’s state’s operating budget, slashing services beyond the cuts already made by the Alaska Legislature in order to move closer to a balanced budget without raising taxes or reducing the Permanent Fund dividend.

The action drew immediate and impassioned criticism from many Alaskans, including those who rely on those services and those who provide them, and there were calls on lawmakers to override the vetoes. But the governor also drew praise from Alaskans who believe state government is too large.

The University of Alaska is the biggest target of Dunleavy’s line-item veto pen, losing $130 million in state support atop the $5 million cut approved earlier by lawmakers. The resulting reduction is nearly 41% of the state’s support for the university system. University officials said the cuts would be devastating to the UA system.

“I believe they’re going to be able to work through this ... I don’t believe they can be all things to all people, and I think that’s generally speaking, the state of Alaska. We can’t continue to be all things for all people,” the governor said Friday morning in a news conference that was broadcast statewide.

For the fiscal year that starts July 1, Medicaid spending was reduced by $50 million, the state’s senior benefits program was eliminated, a cruise ship pollution inspector program was eliminated, the Village Public Safety Officer program lost $3 million in funding and most state support for public broadcasting was erased.

The Legislature can override those decisions, but only if three-quarters of its 60 members agree. The deadline for an override is the fifth day of the special session that begins July 8.

Alaska House Speaker Bryce Edgmon, I-Dillingham, said the governor’s budget presents an “imminent threat" to Alaskans.

“The fundamental question is now squarely before Alaskans. What’s more important: a healthy economy, our schools, university, and seniors, or doubling the Permanent Fund Dividend at the expense of essential state services? The governor has made his choice clear,” Edgmon wrote.

Which areas saw the biggest cuts

182 line items cut

In total, the governor used his constitutionally granted power to reduce or eliminate 182 line items in the state budget.

Dunleavy acknowledged that the cuts will cause hardship for some Alaskans, but he believes they are necessary in order to balance state spending — including spending on the Permanent Fund dividend — with revenue.

“It’s going to be tough for a short period of time here, but we’re going to get through it,” he said.

In a statement released after the governor’s announcement, the Alaska Federation of Natives, which represents about 140,000 Alaska Natives, called the vetoes “an unwise commitment to a campaign promise.”

“AFN supports the overall parameters of operating budget the Legislature passed,” AFN President Julie Kitka said in a prepared statement. “We urge the House and Senate to override these uncalled-for vetoes, particularly those related to education, health, and public safety.”

Last year’s state operating budget was $8.8 billion, according to figures from the nonpartisan Legislative Finance Division. The Legislature reduced that this year to less than $8.7 billion. Dunleavy’s vetoes reduce it still further, to $8.3 billion, according to figures from the Office of Management and Budget.

Most of that amount is funded with federal dollars and fees — tuition at the University of Alaska, for example.

The remaining $4 billion is paid for with what’s called “undesignated general funds” — money generated by taxes and an annual transfer from the Alaska Permanent Fund Corp.'s investments.

The state’s annual capital budget, and the cost of repealing and replacing Senate Bill 91, is expected to cost about $200 million in undesignated general funds.

According to the annual estimate provided by the Alaska Department of Revenue, the state will have about $5.24 billion in undesignated general funds to spend.

While that’s more than enough to pay for services, paying a dividend with the traditional formula would cost $1.9 billion. That figure, added to the $4.2 billion in spending, leaves a deficit.

For more than six months, lawmakers have tied themselves in knots over that math problem: Should they cut services to free more money for the dividend? Should they simply spend from the Alaska Permanent Fund to cover the deficit? Or should they reduce the dividend to make ends meet? Tax increases, a fourth option, are not being considered.

The governor has consistently said his goal is to craft a state budget that pays a traditional dividend and provides state services without higher state taxes or spending from savings.

In February, he unveiled a proposal that would balance the budget along those lines in one year. The approach diverted oil, gas and fisheries revenue from municipalities and suggested steep cuts to services.

The Legislature rejected many of the governor’s plans, but his veto powers allowed him on Friday to accomplish at least some of his suggested budget reductions.

Donna Arduin, head of the state Office of Management and Budget, said the governor’s one-year plan has changed to a two-year plan, and more cuts are expected next year.

“There are many items that are still on the table that are still works in progress,” she said.

“If everything falls into place, I believe we’ll have a balanced budget, a sustainable budget going forward,” the governor said.

‘Devastating to the university’

Watching the budget rollout from Anchorage, university officials were dismayed.

University of Alaska President Jim Johnsen described the veto as “devastating.” He told the Board of Regents at an emergency meeting Friday that the university system will focus “wholly and strongly” on having the Legislature override the governor’s veto.

“There’s no question, this budget if not overridden by the Legislature, would be devastating to the university and to our mission and to the state and to our economy now and for years to come,” Johnsen said.

Under the state constitution, the Alaska Legislature has until the fifth day of the upcoming special session to override the governor’s vetoes, if it chooses.

An override requires 45 of the Legislature’s 60 members to agree. The House Republican minority has 15 members, however, and has generally been aligned with the governor’s views of the budget. Several members of the Alaska Senate also generally share the governor’s view of the budget.

In an interview with reporters at the end of the first special session, Edgmon, the House speaker, said the political landscape “does not seem to favor the 45-vote threshold” under most circumstances.

In a written statement Friday, House Minority Leader Lance Pruitt, R-Anchorage, said the members of his group will be examining the governor’s vetoes over the next few days.

“If our caucus does decide to revisit any of the governor’s reductions, we will do that through the capital budget or a supplemental budget, and not through the process of veto override,” he said.

The Alaska Public Employees Association asked lawmakers to act before then.

“If these vetoes are allowed to stand, Alaskans from all walks of life and all corners of our state will face unnecessary hardship. This doesn’t reflect the Alaska I know. Alaskans deserve better,” the union president, Cecily Manning, said in a prepared statement.

Deep divides in the Legislature

The 14-member Alaska Senate majority is deeply divided on the budget and the Permanent Fund dividend. Senate President Cathy Giessel, R-Anchorage, issued a noncommital statement under her own name, saying in part, "Protecting the Permanent Fund and prioritizing essential services were among the guiding principles of this Senate. It is those principles that will continue to guide us as we consider each of the vetoed budget items in the coming days.”

“This is across the board just devastating to so many people to the poor, to the elderly, to our students — it just affects so many people,” said Sen. Gary Stevens, R-Kodiak.

Senate Majority Leader Mia Costello, R-Anchorage and Sen. Lora Reinbold, R-Eagle River, said they are paying close attention to the veto of the state’s senior benefits program, which pays cash each month to low-income older Alaskans.

Generally, however, Reinbold said she is supportive of the governor’s actions.

“I think that Alaskans elected a governor who made promises to reduce the government, and he’s doing that," she said.

The six-member Senate minority roundly condemned the governor and his vetoes in a press release.

"I continue to be amazed by this governor’s lack of compassion, vision, and ability to work with others to build a better Alaska,” said Sen. Donny Olson, D-Golovin.

Among the 182 vetoes:

• The Alaska State Council on the Arts has been defunded, cutting $2.8 million, and the governor also removed the ability of the council to pass on $1.1 million in grants received from private organizations.

• A one-time $30 million funding boost for K-12 schools was vetoed. Formally, the governor views that funding — which was passed by lawmakers last year — as illegal. The issue is expected to go to court.

• Advance funding for K-12 schools in the 2020-21 school year was eliminated; the Legislature will have to set the K-12 budget next year for 2020-21.

• State funding for public broadcasting, including TV and radio stations, was cut by $2.7 million. Funding remains for satellite service used to provide emergency communications.

• The Ocean Ranger cruise ship pollution inspection program was defunded, cutting $3.4 million. (This program was entirely funded with fees from the cruise ship industry and the veto does not save tax dollars.)

• The state’s senior benefits program, which pays cash to poor elders each month, has been fully defunded, cutting $20.8 million from the budget.

• Adult public assistance payments to needy aged, blind and disabled Alaskans have been cut by $7.5 million through a veto.

• Medicaid dental coverage has been eliminated for adults, a cut of $27 million.

• Money for a prosecutor and assistant in Utqiagvik was vetoed, reducing the budget by $533,000.

• The budget for the Village Public Safety Officer program was cut by $3 million. (Another $3 million was vetoed from a supplemental budget for the fiscal year that ends June 30.) The reduction does not reduce the number of VPSOs — the program has been unable to hire enough officers to use its full $14 million budget.

• The Alaska Wing of the Civil Air Patrol was defunded, saving $250,000.

• The governor vetoed half, or $48.9 million, of the money required to pay the state subsidy for older school bond debt incurred by cities and boroughs. Under a now-suspended program, the state pays a portion of bonds issued by local governments for school construction and renovation. The veto means local governments now have to pay more of those older bonds.

• The governor vetoed $5.4 billion of a $9.4 billion transfer from the Permanent Fund’s earnings reserve to the corpus of the fund. The transfer was intended to prevent the Legislature or the governor from easily spending that money. The veto leaves the money in the Permanent Fund’s earnings reserve, where it can be spent.

Read about more of Dunleavy’s line-item budget vetoes here.

ADN reporter Tegan Hanlon contributed.

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