Dunleavy’s new budget may again seek deep cuts, bigger PFDs

Gov. Mike Dunleavy addresses the 2019 Alaska Federation of Natives convention at the Carlson Center in Fairbanks on Oct. 17, 2019. (Photo by Nathaniel Herz/Alaska Public Media)

Gov. Mike Dunleavy may again seek deep cuts in state spending, along with higher permanent fund dividends, when he introduces his second budget this week, people watching the budget say.

The scale of the gap between what the state spends and what it brings in is similar to last year — roughly $1.5 billion.

This year’s proposal will be different. Dunleavy has already ruled out repeating much of his proposal from last year, including plans to transfer more than $400 million in oil property and fishery taxes from local governments.

The governor’s proposal last year would have cut roughly a quarter of all state spending on public education. The proposal didn’t advance in the state Legislature.

The proposal may include more information on the governor’s plans for tribal compacting for education. He announced the concept at the Alaska Federation of Natives Convention in October.

Much of Dunleavy’s proposed cuts to Medicaid did pass last year. But the early projections show that roughly $100 million of that cut won’t happen. That’s a result of delays in implementing cuts, as well as the fact that details for some of the Medicaid cuts were never spelled out in the budget.

Further cuts to Medicaid may require changes to services or eligibility that would require changes to state law. Deeper cuts in payments to hospitals and doctors also are possible.

The proposal may complete the two-year process of eliminating state reimbursements to municipalities to pay for school bond debt, as well rural school construction funding.

The Alaska Marine Highway System also could be further reduced.

There are a few reasons why the spending gap is similar to last year, despite $390 million in reductions to the state’s operating budget.

One is that the budget relied on spending from two savings accounts: $172 million from the Statutory Budget Reserve and roughly $143 million from the Constitutional Budget Reserve.

The nonpartisan Legislative Finance Division has estimated Medicaid underfunding at $100 million.

And state revenue is expected to be down nearly $200 million compared with the forecast in the spring.

The budget must be introduced by Sunday, but it may be introduced in the middle of this week. Dunleavy has said he will be visiting communities across Alaska to discuss the budget. He can propose amendments to the budget until the middle of February.

Andrew Kitchenman is the state government and politics reporter for Alaska Public Media and KTOO in Juneau. Reach him at akitchenman@alaskapublic.org.

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