June 28, 2019, 11:00 a.m. State Capitol Building in Juneau, governor’s conference room
Gov. Mike Dunleavy: Good morning, everybody. Thanks for being here today. So today we’ve signed the operating budget. And the budget has some significant pieces to it. So the budget’s been signed; we have reductions of about $680 million in that budget. And that includes the work that the Legislature has done, of reductions of about $280 million, which was somewhat historic for the legislature. Um, we added $400 million in vetoes to that to get the budget down further.
On Feb. 13 we introduced the budget in an attempt to close this deficit we’ve had for years. And we said that we were gonna do it without new taxes and additional revenue. We were hoping we were going to get that done this year, but with discussions with the legislature and others - with other stakeholder groups, we decided to make this a two-year process. So this year we have about $680 million, close to $700 million, in reductions, and so next year, it’s our goal to complete this process and completely close this gap so that Alaska can put this behind us and get on with growing our private economy, adding jobs to the economy, adding new industries, et cetera, et cetera.
Um, so this action this year eliminates close to 50% of the deficit, is what happens. I believe we’re on our way to having a balanced budget. When we close the gap next year, completely, we will have a balanced budget going forward. And the issue is, and we all know this, is we can’t kick the can down the road because we’re running out of road. Um, and so we take this - this charge very seriously. We said we were going to have a balanced budget. We were hoping to get it done in a year. It’s going to take two - two years, if everything works out here in the coming year. Um, we look forward to working with the Legislature going to next year; we appreciate the work they did this year on the operating budget.
And, um, we’re going to talk in a moment here about some of the reductions that are occurring. It’s certainly going to um, once again bring this budget down, but it’s going to bring it down, we believe, to a level we can completely take care of this next year.
So with that, if there are any ...
Press Secretary Matt Shuckerow: I think we’d like to bring OMB Director Donna Arduin up real quick, to walk through some of the steps that we’re taking as well, and then we’ll take questions.
Arduin: On Dec. 14, we announced that Alaska faces a $1.6 billion budget deficit. And on Feb. 13, Gov. Dunleavy proposed a budget that would eliminate the entire deficit in one year. His budget proposal was sustainable, predictable and affordable, and together with his constitutional amendments, would protect a full statutory dividend into the future.
This morning, the governor vetoed 182 lines of the Legislature’s operating budget, bringing spending reductions, as the governor said, to almost $700 million, including the reductions passed by the Legislature.
Vetoed items aligned several programs to the level of spending proposed by the governor in February. Major reductions in the final budget include those for the University of Alaska, the Marine Highway System, school construction debt, executive branch travel, social services programs, the Medicaid program. Additionally, public broadcasting funding was vetoed, as was funding for the council of the arts.
The final budget will spend $4.9 billion in general funds, a 12% reduction and the lowest spending level since 2005. The almost $700 million reduction in fiscal year 20, as the governor said, will leave us with about a $700 million deficit in fiscal year 21, that the governor will resolve and pay a full statutory dividend.
There are many items that are still on the table that were works in progress. The Medicaid reduction and Marine Highway reductions were always supposed to be two-year step-down processes. There are other things that the Legislature did not take up that we could do next year to resolve the remaining deficit.The governor’s vetoes reduce the Legislature’s $2.9 billion transfer from the earnings reserve account to the General Fund by $1 billion, leaving that billion dollars in the earnings reserve to pay dividends. The governor did agree to a transfer of $5 billion from the earnings reserve to the corpus of the Permanent Fund; that’s less than the amount the Legislature proposed to transfer, but it’s the amount that we felt could be transferred and still preserve future dividends until we have a long-term fiscal plan.
So we have work to do ahead of us next year — resolve the rest of the deficit and pass constitutional amendments, so we can assure the dividends, sustainable spending in the future for Alaska.
Q & A:
Becky Bohrer, Associated Press: Governor, a question from the special session: The attorney general, earlier this week, outlined options he gave you. How strongly do you feel about lawmakers going to Wasilla, and what are you willing to do to ensure that happens?
Dunleavy: So, we’ve been a little immersed in the budget issues the last few days, but we’ll take a look at all our options, all of our tools the constitution provides us, and we’ll make that decision here in the next coming days. But we’re hoping that the Legislature, the entire Legislature, goes to Wasilla for the special session on July 8, so we can resolve the PFD and then hopefully when we get that PFD resolved as quickly as possible, we can begin to have a discussion on the capital budget.
Steve Quinn, KTVA: Governor, you talked about wanting the Legislature to follow the law. You’ve also talked about giving Alaskans a voice. So you’ve got a transfer - a veto of $1 billion, that’s under SB 26. And that doesn’t line up with the intent of the law. And then you’ve vetoed the Ocean Ranger program,which doesn’t cost the state any money, and that was the people’s voice. So how do you reconcile these vetoes with what you’ve said in earlier conversations with us?
Dunleavy: So we have another set of laws that’s on the books as well. And that law’s been on the books for 40 years, to pay a full dividend. We believe that with SB 26 and the draw, in conjunction with the transfer from the earnings reserve at $19 billion, we believe that we’re following the law. And the other question was?
Quinn: Vetoing the Ocean Ranger Program. The industry was just fined $20 million for probation for polluting Alaska’s waters. Why remove a level of oversight that the industry doesn’t like, but that everyone in the committee hearing that testified seemed to think worked, for various reasons.
Dunleavy: We believe that there are ways to actually protect the environment, and I’m not sure if we have one of our folks here that want to speak to that in any detail?
Arduin: Matt’s answered that question many times.
Shuckerow: Sure, I think the governor has said there are other mechanisms to make sure that environmental conservation is done, it’s done throughout many of our departments. I think that we’ve said that this is, you mentioned, an initiative in which some of its own folks who have pushed it have said that hey, there may be another way, it hasn’t been as effective as originally intended.
Look, I think the other point is, is in looking at this budget, there are some core services in terms of what is the focus of the department, what they’re using their time on, so this kind of falls in line in a number of different ways. But we can give you some follow-up. I just want to note that the change records that will accompany all these do have justifications that are applied to each one of these actions, these 182 lines, and so I encourage you guys to take a look at those; those should be live shortly.
James Brooks, ADN: Governor, obviously I’m curious about the effects that these vetoes will have statewide. Just picking out one, I’ve heard from communities on school bond debt reimbursement. Many communities have said, “Hey, if this goes away, at least in part, we’ll have to raise property taxes. Do you expect that to happen as a result of this?”
Dunleavy: I don’t know the answer to that. That depends upon the community, that depends upon their reserves or how they handle their finances. There was no easy way out of this. Whether the PFD was taken, and the effects that will have on 680,000 individuals and families statewide, whether it’s taxes, whether it’s reductions, I think everyone realizes that there’s no easy way out of this or we would have found the easy way.
But I believe that communities are going to have to make the decision of how they’re going to deal with that. It wasn’t reduced in its entirety, it’s reduced by 50%, and that came in part from discussions from some members of some of these municipalities that are dealing with the bond debt reimbursement issue.
Greg Knight, KINY: Is there any expectation on your part of the Legislature trying to override your vetoes?
Dunleavy: I would imagine there will be discussions. I think whenever there’s vetoes there’s discussion on overrides. The Legislature’s going to have to ask the question how are they going to pay for it, how does this - if there are overrides, how does this help resolve the fiscal deficit that we have?
And as I’ve mentioned, we’re running out of road. We’ve kicked the can down the road so many years, we’ve drawn down at least $14 billion in savings to pay for this. The past administration tried modifying the PFD and also taxes, and that didn’t work. We said early on that we were going to take a different approach. This is the approach that we’re taking. But I think you have enough legislators that understand that some difficult choices need to be made, and they’re part of that.
Keep in mind, $280 million was reduced by the Legislature during this process. So I think that all legislators understand that we need to reduce this budget.
Andrew Kitchenman, Alaska Public Media: Part of the dispute over education funding includes $30 million that the Legislature included for next year’s budget, that they believe is valid and your administration says is not legally valid. What’s you position on that $30 million?
Arduin: Sure. So as you know, the Legislature did not include education funding, either the $30 million or the formula funding, in the budget. You may know that we have an agreement, our attorney general with legislative legal council, to continue paying the formula funding until the legal issue is resolved. But the result of that is that the $30 million in funding will not exist if the courts decide in the attorney general’s favor.
Erin McGroarty, Fairbanks Daily News-Miner: Hi governor. In a recent visit, US Attorney General William Barr referred to Alaska’s rural public safety situation as an emergency. Given those statements, how do you justify cutting $3 million and 25 available positions from the state VPSO program?
Dunleavy: I’m going to let our OMB director address that.
Arduin: So as we’ve said many times in front of the Legislature, that’s money that won’t be spent. Those positions are vacant and the money would lapse. So, because it’s going to lapse to the general fund, we believe that we should just say it’s going to lapse, and prioritize it to other programs.
Shuckerow: And Erin, we can give you some more information. I think those funds have lapsed on -
Dunleavy: Multiple years.
Shuckerow: I think three years. We have in the change records, that will be supplied, the staffing levels, there are significant vacancies. And it’s not for an attempt to - not to add salary increases or changes to the program. And the governor is certainly committed to public safety here. So, next question on the line.
Alex DeMarban, ADN: Hi, thanks for taking my question. I’m curious what the loss in federal matching funds would be from the vetoes, and if you could spell out the specific areas where those funds will be lost and the specific amounts, that would be helpful.
Arduin: So the fiscal summary shows that there is a very small loss in federal funds as a result. The Medicaid program in particular, to answer your question, is something where the Department of Health and Social Services continues to find ways to increase their federal match, continues to go back to the Legislature to get more receipt authority for the federal funds. So we don’t believe at this time that there will be a significant loss in federal funds, as we’re working forward with CMS on further Medicaid reforms.
Elwood Brehmer, Alaska Journal of Commerce/ADN: Hello, governor. I’d like to go back to Steve’s question, a little bit, because I honestly don’t think you really answered it. Given your emphasis on following the law, how does vetoing programs that are still in statute jibe with that?
Dunleavy: There were a number of statute changes that we attempted this year. And because those statutes weren’t changed, we want to continue to have a discussion with the Legislature, because to get to the full closure of the deficit, we are going to have to change some statutes.
Again, with regard to, for example, some would call it a dueling situation with SB 26 and the current statutes, or the statutes that have been on the books for decades. That’s an interesting situation, but we do have two sets of statutes. We believe, through the decades-old statutes regarding the PFD calculation, that it’s a transfer. That it’s a transfer to the PFD, and to the people of Alaska.
SB 26 is in law, we understand that, and we understand that the draw is a 5.25 percent draw, but we need to provide for the full PFD. Until that statute is changed, or until the people of Alaska have a voice in changing that statute, we’ve got two statutes that some say, in some respects compete. But we believe that, again, the calculation for the PFD, the decades-old calculation for the PFD, still needs to be honored.
Kitchenman: Governor, some of the cuts in the budget include programs for more vulnerable Alaskans: Adult public assistance, senior benefits, homeless assistance, adult preventive dental for Medicaid. What’s your message for Alaskans who might want to see more compromise or have different values than are reflected in this budget on those items?
Dunleavy: No doubt, some of these reductions are going to be difficult. We believe, again, that if there’s a full statutory PFD of $3,000 going to Alaskans, that that is money that Alaskans can use for some of the needs you just mentioned. But again, we have to close this gap. This budget touches practically every Alaskan. It’s not necessarily going to easy; we never said it would be. But we do believe that in some of these cases, a full statutory PFD could mitigate some of the issues.Brooks: Governor, SB 26 was designed to limit draws from the earnings reserve in order to reduce the risk that the long-term value of the fund will decline. Right now we’re looking at a draw that exceeds the SB 26 through dividends and through spending on government. Are you more concerned with the dividend than the long-term health of the fund?
Dunleavy: No, I’m concerned with both. We have $19 billion in the earnings reserve right now. It’s calculated to grow by billions more over the next year or two. We hope that this is going to be a one-year issue, in terms of the size of the budget. We believe it’s the budget that is what’s risking any long-term health. We believe that once we get that under control, again, we can have a full statutory PFD, the fund continues to grow, and we eliminate that risk. But it’s the growth in the budget that we have concerns about.
Brooks: Just a follow-up, briefly. If you’re concerned about both, why veto part of the protection that legislators have passed - the transfer to the corpus?
Dunleavy: The $5 billion?
Dunleavy: We want to have more of a conversation, going forward, on the permanent fiscal plan. We want to make sure that we are thoroughly looking at how much money can be transfered without risking a full statutory PFD and the operations of the Permanent Fund.
Quinn: Governor, you’ve talked about making Alaska “open for business.” So how does a cut of to the University of Alaska of $135 million support that, making Alaska “open for business?”
Dunleavy: Again, this budget is going to impact all of Alaskans. The University of Alaska, I have a lot of faith in. I know their leadership, I know many of the Regents. I believe that they’re going to be able to work through this, and I believe that they can turn the University of Alaska into - if not the finest university of the Arctic - in a few select areas. I don’t think 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 to all people. We don’t have the money to do that. But I do believe that the University of Alaska is resilient, I believe they have good leadership, and I say give them a chance. I believe that they can turn the university into a smaller, leaner, but still very positive, productive university here in the Northern Hemisphere.
Shuckerow: So we only have time with a couple more. We’re going to go with Becky.
Bohrer: Governor, during public testimony, one of the things that people commented on heavily, the past couple years, was public broadcasting. Can you explain the decision that you made there, on cutting subsidies for TV and radio?
Dunleavy: Again, tough decisions. We left intact the emergency aspect of public broadcasting, we didn’t veto that. But we believe that with the number of stations, both radio and TV, and just given our fiscal situation - it’s really the fiscal situation that’s driving the need to reduce the budget. And we believe that people will still be able to access programs through other means. We still keep intact the emergency broadcasting aspect of public radio, or public media. It’s not easy, but this is just going to be part of the overall reduction.
Knight: This might be a question for OMB, governor, but the position reductions: Do those come to any specific departmenting? Where are the majority of those? Can you comment on that?
Lacey Sanders, OMB budget director: The 68 positions that are being reduced are throughout multiple departments. The most significant areas would be in the Department of Natural Resources, the Department of Agriculture is prioritizing their programs and that will result in the elimination of several positions. The Nome youth facility closure will also result in significant number - 18 positions being eliminated. Those are the two largest ones, the remaining positions are trickled throughout the departments.
Shuckerow: We’re just going to give the governor an opportunity to wrap up here, and then we’ll be through.Dunleavy: Again, as I mentioned, this is a difficult situation. But I believe everyone realizes that something has to be done. Prior years, there were attempts at using the PFD. The people of Alaska rejected that. Attempts at multiple types of taxes - the Legislature rejected that.
So we ran on a platform of trying to close this budget. We’re focused on doing that. We’re using an approach in which we are reducing the size of government. We believe we can get there. Won’t be easy, but the other options were not going to be easy as well.
So I believe that if Alaskans pull together, we get through this year, we have discussions this summer and fall about how we’re going to reduce even further next year. And if everything falls into place I believe we will have a sustainable budget going forward, especially if we get those constitutional amendments in place that lock us in.
I think when that happens, you’re going to see a continual growth of our private economy. For years, for decades, Alaska’s government side of the economy has been pretty big. It’s going to be smaller. But that doesn’t mean Alaska’s best days are behind us. Quite the contrary, I think Alaska’s best days are ahead of us. The economy’s roaring down south, there are institutions, individuals and others that wish to invest in this country, but also in Alaska.
We’re having conversations with potential industries coming to Alaska. We believe that by getting the government side of things under control, we open up real possibilities for the private sector to grow exponentially. And so we’re excited about that. Tough - it’s going to be tough for a short period of time here, but we’ll get through it.
So I want to thank you all, there’s going to be detail that these folks can answer and online, and I’m sure that we’ll have more conversations about the budget here over the next several days. Thank you very much.