Dunleavy says budget vetoes weren’t too aggressive

Gov. Mike Dunleavy said his line-item vetoes of the state budget weren’t too aggressive in a call with reporters on Thursday.

“Did I think this was going to cause a very heated discussion in the state of Alaska? I did. I think it needs to happen, because Alaska needs to decide what road it’s going to go down,” Dunleavy said. “Are we going to reduce the budget? Or are we going to take the PFD and tax ourselves? Or possibly a combination of (those). We won’t get there if I continue and try to kick the can down the road by using our savings and acting as if everything is OK. We’ve got to fix this now. We’ve got to fix this on my watch. I’m willing to do it, and I think one had to be aggressive.”

Dunleavy also said Alaskans will want half of whatever earnings the state spends each year. He directed this message at legislators interested in changing the dividend formula.

“I would just caution them that, going forward, the people of Alaska are going to want to feel that they are a partner, that 50% of whatever comes out of the earnings in whatever form, they’re going to want to want to be part of,” Dunleavy said.

Legislators have discussed dedicating a share of the annual earnings draw to dividends. Before Dunleavy’s vetoes, Senate Finance Committee staff estimated the state would have an $861 million gap between spending and revenue if half of the draw went to dividends.

The Legislature is considering a new bill to pay permanent fund dividends this year at $1,600. Supporters want to reverse most of Dunleavy’s vetoes and protect the fund’s future. Opponents emphasize that the bill violates the PFD formula enacted in 1982.

House Bill 2003 is aimed at keeping the draw on permanent fund earnings within a limit passed last year.

Kenai Republican Rep. Gary Knopp, a member of the House majority caucus, said there’s a gap between how much the state spends and raises, and lawmakers have to choose between following the dividend formula or the limit on drawing from fund earnings.

Knopp said the earnings reserve account is at risk from higher PFDs.

“If you draw more than what’s sustainable, you will deplete it — it doesn’t make a difference if it’s $100 billion or $10 billion — over time,” he said. “So by continuing to draw more than it will earn is unsustainable. You will deplete it, at that rate, in probably three to four years.”

Members of the House majority have focused on public outcry against Dunleavy’s vetoes. But Wasilla Rep. Colleen Sullivan-Leonard, in the Republican minority caucus, said previous public testimony has criticized cuts to the PFD.

“It was overwhelming testimony,” she said. “The people are tired of continuing to say, ‘We want the full statutory permanent fund dividend.’”

The full dividend would be roughly $3,000 — the largest in the program’s history.