A $443 million cut to education.  $336 million from health care.  $57 million from transportation.

A majority of voting Alaskans got what they asked for Wednesday, February 13, as Gov. Mike Dunleavy released a FY 2020 budget with $1 billion in cuts.

Dunleavy campaigned on a limited platform.  He stood in support of education, promised to be tough on crime, and argued for a full Permanent Fund dividend (PFD), calculated via the statutory formula.

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In a press conference Wednesday, he also said he ran on a platform of fixing the budget.

“My administration is determined to fix this issue this year,” he said.

As expected, the budget includes a roughly $3,000 PFD at a cost of $1.9 billion.

To fill the resulting deficit, Dunleavy is proposing deep cuts to education, transportation, and Medicaid.

The enacted FY 2019 operating budget totaled $4.6 billion in unrestricted general funds (UGF), excluding the PFD.  $3.9 billion of that was for agency operations.

In contrast, Dunleavy’s proposed operating budget is $3.6 billion UGF, with $3.1 billion in agency operations.  

Dunleavy’s proposed capital budget is only $96 million UGF, a cut of $52 million from last year. 

Despite requests from the Senate Finance Committee, the Dunleavy administration meshed fund sources, making year-over-year comparisons difficult.

However, once designated general funds (DGF), which don’t contribute to the deficit, are stripped out, Dunleavy’s proposed budget still leaves a deficit of $400 million, contrary to the administration’s reports.

The Fall Revenue Sources Book estimates FY 2020 UGF revenue at $5.2 billion.  After the $1.9 billion for PFDs is removed, $3.3 billion is left to spend.

Dunleavy’s total budget would cost $3.7 billion UGF.

“As we’ve all seen, for too long, politicians haven’t been honest when it comes to the numbers and the seriousness of our fiscal woes.  We’ve seen misleading figures and confusing budget tactics,” Dunleavy wrote in a statement before release of the budget.  “Today I’m here to say: Those days are over.  We can no longer spend what we don’t have, and we can’t pretend otherwise.”

He went on to say a core tenet of the budget was that “expenditures cannot exceed existing revenue.”

“This budget’s balanced,” Office of Management and Budget (OMB) Director Donna Arduin insisted Wednesday.  “Governor Dunleavy’s budget uses honest numbers and does not drain reserves, nor take dividends from Alaskans.”

In switching Medicaid spending from multiple components to a single component, the administration nearly hides a $250 million UGF cut to Medicaid.

The Impact of Cuts

According to a 2016 analysis conducted by the University of Alaska Anchorage (UAA) Institute of Social and Economic Research (ISER), every $100 million cut from the State budget results in about 1,100 lost jobs across the state.  $1 billion in cuts would result in 11,000 lost jobs.

That same report determined a $100 million cut to the PFD results in about 725 lost jobs.  Therefore, Dunleavy’s $3,000 PFD would result in about 6,500 jobs gained, for a net loss of 4,500 jobs.

Arduin said that the budget eliminates 625 full-time State worker positions, but she did not know how many of those positions were actually filled.

“Many people have been leaving Alaska, more so than have been coming here since the State stopped balancing its budget,” Arduin said in its defense.

Of those who leave Alaska after losing their jobs as a direct result of this budget, Dunleavy said, “That will be their choice.” 

Economist Mouhcine Guettabi, one of the authors of the ISER report, noted in a tweet that $1 billion represents nearly as much as the total payroll of the retail or construction industries.

Dunleavy’s budget cuts funding for the University of Alaska, where ISER conducted this research, by $134 million, or 41 percent of their FY 2019 budget.  The administration suggests that the University cover the difference with tuition.

“Our investment in the University of Alaska is much higher than other states and is eroded by low retention and graduation rates,” Arduin said.  “Alaska’s education system has the highest cost per student in the nation, and the lowest amount of dollars go into instruction.”

The University released a budget overview Wednesday showing that it would have to double tuition to fill the gap or close both UAA and the University of Alaska Southeast.

The Dunleavy administration plans to cut the Alaska Marine Highway System (AMHS) by $98 million as it seeks to turn it into a public/private partnership.

At least 500 Alaskans in prison would be sent to Outside prisons at a cost of $17.8 million.

“It is quite clear that Governor Dunleavy does not take his job and our state’s Constitution seriously,” Senate Minority Leader Tom Begich (D-Anchorage) said in a press release.  “The trend he is setting for the state is evident; strip public assets to fill private pockets.  This is unacceptable, and quite frankly a dereliction of his constitutional duties.”

The budget includes a 50-percent reduction in travel across all departments.

For a deep dive in cuts to each department, scroll to the bottom.

Budget Numbers Inflated, Include Cuts and Revenue That Need Legislative Action

Dunleavy is claiming that the budget is $1.6 billion different than the one Walker proposed before leaving office.  But that includes $420 million of speculative revenue from a bill Dunleavy introduced Wednesday that would end the ability for mostly North Slope communities to tax oil and gas producers.

Dunleavy has also proposed a repeal of reimbursement to municipalities and the University for capital projects, as well as a repeal of the $20 million Senior Benefits Payment Program tied to federal poverty levels.

Other cuts that would require legislative or federal action include a $32 million cut to public assistance and the elimination of the $17 million PFD Hold Harmless provision, which keeps people receiving public assistance from having their benefits cut if the PFD puts them over the eligibility limits.

“Governor Dunleavy is declaring war on seniors, kids, and the most vulnerable among us while holding harmless the most profitable companies in the world,” Sen. Bill Wielechowski (D-Anchorage) said. “Cutting Senior Benefits, education, and healthcare while increasing his own budget and not touching $1.9 billion in oil tax credits shows where his priorities lie, and it is not with Alaska.”

Former Gov. Bill Walker drew criticism from legislators when he included revenue in his FY 2017 budget from various taxes and the Permanent Fund before action from the legislature.

When asked if people who voted for him expected a budget like this, Dunleavy responded, “I do.”

Dunleavy will be unable to use his line-item veto authority on items that need action outside the budget, should the legislature add funding back.  However, he may veto related items in the department, potentially spurring veto override conversations in the Capitol.

Dunleavy released his revised FY 2020 budget on the last day allowed by law, 60 days before the legislative session is statutorily required to end.  Consideration of the related bills all but guarantees that the legislature will go into overtime, especially with the House yet to organize.

Notable Cuts and Increases By Department

The following are pulled from OMB’s change record detail sheets for each department:

Department of Administration   

– $451,000 reduction for labor negotiations from the FY 2019 budget

– Eliminate all funds related to Public Broadcasting ($3.6 million)

Department of Commerce, Community, and Economic Development   

– $750,000 cut to Alaska Legal Services Corporation (ALSC) grants

– Reverse a variety of one-time legal costs associated with bills passed last year, including allowing out-of-state physicians to treat injured athletes

– Economic Development will transfer to the Office of the Governor

– Defund the Mariculture and Revolving Loan Fund for long-term shellfish farms

Department of Corrections    

– Elimination of the Professional Conduct Unit, established to investigate Corrections personnel following prisoner mistreatment and deaths ($1.1 million) 

– $17.8 million increase to transfer a minimum of 500 prisoners to Outside facilities

– Close Wildwood Correctional Center ($6 million)

– $6.7 million switch for Physical Health Care from general funds to PFD Criminal Funds “due to an increase in both the number of people deemed ineligible and the amount of the PFD”

Department of Education and Early Development   

– $269 million cut to the foundation formula

– $30 million cut to FY 2020 education grants included in HB 287 last year

– Eliminate all funding for early childhood education, Head Start, and Parents as Teachers ($16.8 million)

– Eliminate State Council on the Arts ($2.8 million, including $800,000 federal)

– $400,000 cut from Mt. Edgecumbe Aquatic Center

– $1.1 million cut from School Broadband Access Grants

– Defund Online With Libraries (OWL) program ($671,000)

– Defund Live Homework Help program ($138,000)

– Defund Washington, Wyoming, Alaska, Montana, and Idaho (WWAMI) Medical Education program ($3.1 million)

Department of Environmental Conservation     

– $120,000 increase for a chemist to monitor cruise ship air pollution in downtown Juneau

– $120,000 increase for federally-required air monitoring in Fairbanks

Office of the Governor    

– Reverse effort to consolidate Alaska Housing Finance Corporation (AHFC), Alaska Energy Authority (AEA), and the Alaska Industrial Development and Export Authority (AIDEA) ($2.4 million cut)

– $300,000 cut to the Contingency Fund

Department of Health and Social Services     

– $16.8 million cut to the Alaska Pioneer Homes (APH), which will raise rates.  A $15 million APH Payment Assistance grant program will be established to help residents pay higher rates.

– $1.7 million cut to Alaska Psychiatric Institute for acute mental health services.  API will be privatized, though “privatization may not result in an overall general funds savings in FY2020.”

– Reverse Substance Abuse Disorder Services Pilot Program ($2 million)

– $7.6 million increase of federal funds for behavioral health opioid grants

– $8 million cut to hospital-based mental health treatment

– End of youth detention at the Nome Youth Facility ($2 million).  Youth will be moved to Anchorage, Fairbanks, Bethel, or Juneau.

– $14.7 million cut to Adult Public Assistance by reverting payments to 1983 standard.  “This will require approval by the cognizant federal agency before it can take effect.”

– $600,000 cut to burial assistance, capping at $1,000 per application

– $17 million cut to tribal assistance programs under TANF, which would require federal approval

– Eliminate PFD Hold Harmless provision, which keeps people receiving public assistance from having their benefits cut if the PFD puts them over the eligibility limits  ($17.7 million).  “This could affect 36,000 duplicated beneficiaries…. This will require a statutory change.”

– Eliminate Senior Benefits Payment Program ($20 million)

– Eliminate Human Services Community Matching Grants ($1.4 million)

– Eliminate Community Initiative Matching Grants ($862,000)

– Eliminate Adult Dental Medicaid.  This $8.3 million general fund cut costs $18.7 million in federal receipts.

– $9.5 million switch to federal funds for Medicaid Telehealth

– $250 million total cut to Medicaid

Department of Law     

– $54,000 increase to fully fund a new prosecutor in Kotzebue

– $81,000 increase to fully fund two new prosecutors in Anchorage

– $78,000 increase to fully fund a new prosecutor in Bethel

Department of Military and Veterans’ Affairs

– Defund Local Emergency Planning Committee ($300,000)

Department of Natural Resources     

– Reverse Arctic Strategic Transportation and Resources ($6.9 million)

– Close Recorder’s Offices in Fairbanks, Kenai, Juneau, and Palmer ($408,000)

– $8.4 million increase for fire suppression 

– Delete agricultural development programs, including Agricultural Marketing and Agricultural Veterinarian ($700,000 with $700,000 federal)

– Delete Agriculture Revolving Loan Fund ($422,000)

Department of Public Safety     

– $5,000 increase to federal receipt authority for High Intensity Drug Trafficking Areas program

– $125,000 increase for two new Troopers

– $3 million cut to Village Public Safety Officer (VPSO) program

Department of Transportation and Public Facilities   

– $98 million cut to the Alaska Marine Highway System (AMHS) as part of a transition to a potential public/private partnership

– $379,000 increase for Ted Stevens Anchorage International Airport to assume gate scheduling control

University of Alaska     

– $154 million systemwide cut 

Judiciary    

– $413,000 increase to open courts on Fridays

– $394,000 for leases in Bethel, Juneau, Kotzebue, and Seward

Legislature     

– $600,000 increase for Legislative Finance personal services

– $390,000 increase for two new Legislative Finance positions

Statewide Items   

– $27 million cut to oil and gas tax credits ($0 total payments) 

The Senate Finance Committee will take its first look at the new budget Thursday morning.

“I expect a very robust and informational, full meeting,” Senate Finance Co-chair Bert Stedman (R-Sitka) said.

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