The Governor Cuts and the 2021 State Budget

Governor Dunleavy Signs FY2021 Budget, Utilizes Federal COVID-19 Funds

April 7, 2020 (Anchorage, AK) – On Monday, April 6, Governor Mike Dunleavy signed into law the Fiscal Year (FY) 2021 budget, prioritizing public safety, education, state preparedness for natural and public health emergencies, economic development, and holding the line on State unrestricted general fund spending while preserving a balance in the State’s traditional savings accounts. House Bill (HB) 205, as enacted, maintains a balance in the constitutional budget reserve, takes advantage of Federal funds for COVID-19 response and stabilization, maintains spending across various programs and components at a level consistent with FY 2020, and funds an incomplete Permanent Fund Dividend.

“My administration worked to make a number of difficult, but necessary, decisions. The actions I’ve taken with this budget provide stability in times of uncertainty and allows our State agencies to maintain their core functions of serving Alaskans. We have been presented the unique opportunity to capitalize on a one-time fund source through the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act, allowing us to reshape pieces of the final FY 2021 budget. Now, as we face a drop in oil prices and face a global health pandemic, is not the time to irresponsibly increase our State’s budget,” said Governor Mike Dunleavy.

“This bill was sent to me with an estimated $1,000 Permanent Fund Dividend – once again ignoring the decades-old statutory calculation that is still in place, and just as importantly, ignoring the catastrophic fiscal realities of thousands of out-of-work Alaskans unable to buy food and pay rent due to the government-mandated economic slowdown. If ever there was a time to follow the statutes and put Alaskans first, now is the time,” observed Governor Dunleavy. “Our state constitution gives the governor the power to subtract, not add to the budget. Though many Alaskans have asked me to pay out the full PFD, this is something I can’t do without the Legislature supporting the PFD.”

“With the Legislature still in session, it is my hope, and the hope of thousands of Alaskans, that they act now to fix this glaring oversight,” continued Governor Dunleavy. “All across the world, leaders and economists are looking to mimic the PFD. Yet here in Alaska, our leaders are doing the opposite. I will continue to call on the Legislature to follow the law, utilize the statutory calculation for the Permanent Fund Dividend, and get money into the hands of laid off workers throughout Alaska. Call it a PFD, call it a distribution, call it a COVID-19 emergency relief payment; it does not matter. We must act now to help our fellow Alaskans. I remain committed to working with Alaskans and the Legislature to address State spending so we can eliminate our deficit over time. It is critical that we get our fiscal house in order and provide a secure and stable future for Alaskans.”

HB 205 as passed by the Legislature, added $314 million of new spending items to the FY 2021 operating budget, which represents an unsustainable, and in many cases, unnecessary level of spending. Through line-item vetoes to HB 205, Governor Dunleavy reduced the spend by $210 million in unrestricted general funds (UGF). With these vetoes, the FY 2021 operating, mental health, and capital budget, including previously enacted legislation, is $4,517.3M UGF, $905.9M Designated General funds (DGF), $748.4M Other State funds, and $3,855.5M Federal funds.

Key programs and services funded in HB 205:
$99M to COVID-19 response and relief
$135.6M to Alaska State Troopers
$14M to Village Public Safety Officer Program
$5M to Disaster Relief Fund
$5M to Fire Risk Reduction Funding
$34.8M to Pioneer Homes
$54M to the Alaska Marine Highway System
$1.26B to fully fund Education Foundation Formula
$28.5M to Behavioral Health Programs
$7.2M to Homeless Assistance Program
$65M for Capital Federal Match Program to Highways and Aviation

Line-item vetoes in this bill include:
The reduction of debt payments on behalf of other entities, which are not a core function of the State while facing fiscal uncertainty;
A reduction in funding to the University of Alaska to the level agreed to in the 2019 compact between the University of Alaska Board of Regents and the Office of the Governor; and
The elimination of one-time State general funds for programs that may qualify for funding under the Federal CARES Act.

Click here for FY 2021 budget items of interest.

Governor’s budget vetoes gamble on essential services amid an economic, public health crisis

From Jonathan Tomkins:

‘He is using the COVID-19 crisis as justification to veto items he never supported’

JUNEAU – Today, the governor announced significant vetoes to Alaska’s operating budget and to his own supplemental budget acting under the assumption that reductions could be backfilled with federal COVID-19 relief money.
House Speaker Bryce Edgmon (I-Dillingham) released the following statement on the governor’s budget decisions:

“From our initial understanding, federal funds can only be used for expenditures incurred due to COVID-19, not expenditures unrelated to the COVID-19 response. The governor’s vetoes gamble with vital programs like Medicaid, community assistance, school bond debt reimbursement, K-12 education, homeless grants, the Alaska Marine Highway System, public broadcasting, the university, and more. There is no guarantee that the federal government will pick up the tab. This approach is incredibly troubling to me.

Unfortunately, not only did the governor veto his own supplemental budget requests, he is also using the COVID-19 crisis as justification to veto items he never supported.
We need to hear more from the administration on the conversations they’ve had with the federal government about the sideboards around the federal money Alaska is receiving. The governor needs to ensure Alaskans that these essential services will be paid for by the CARES Act.”

House Republicans Respond:

Following the announcement of Governor Dunleavy’s FY 2021 Budget reductions, members of the Alaska House Republicans released the following statements:

“Alaska’s future certainly isn’t predictable at the moment, but I want to stress that we will get through this season together, just as we have always found a way through difficult times,” said Rep. Lance Pruitt (R-Anchorage), House Minority Leader. “Alaska is reaping the consequences of decades of poor fiscal management right now – and yes, those consequences are unpleasant, especially in the middle of a health crisis. But this underscores the need for us to live within our means as a state, all the time, even when oil prices are high and the economy is strong.”

“We cannot spend money in a manner consistent with what we have always done,” added Rep. Cathy Tilton (R-Chugiak/Mat-Su), House Republican Finance Leader. “Especially with federal stimulus funds incoming, talking about a real, constitutional spending cap is long overdue. The Governor rightly prioritized and protected public health and safety items, because those items are paramount.”

“The Governor has assured Alaskans that COVID-19 emergency funding from the federal government will cover most of the line-item reductions. We are facing a health crisis, and with a precipitous drop in oil prices and uncertainty in the stock market, we anticipate huge losses to the Permanent Fund and many vital industries such as tourism, fishing, and small businesses,” said Rep. DeLena Johnson (R-Palmer), House Minority Whip. “We applaud the Governor for making hard choices at a time when hard choices are required. We will get through this, but only if we start making wiser choices when it comes to spending our precious resources. Alaska has been hard hit on all fronts. It is appropriate to take a new look at expenditures.”

KTUU:

The governor said his administration would use part of the roughly $1.25 billion allocated to Alaska under the CARES Act to replace funding for some of those cuts.

“The majority of the larger items we will, we will replace with COVID money,” Dunleavy said before specifically mentioning compensating for cuts to school funding and school bond debt reimbursement. He then said that some of the smaller reductions would not be covered by federal coronavirus funding.

The governor did not detail which of his 108 vetoes would be left in place. According to budget documents, the cuts to public broadcasting and the ferries are expected to stand.

Dunleavy also announced that he had vetoed a roughly $1 billion transfer to the constitutionally protected part of the Permanent Fund. The idea, according to budget documents, is to keep more cash on hand during the COVID-19 pandemic.

Alaskans should not expect the $1.25 billion from the feds to be paid out in cash payments in the form of a second dividend. Instead, the governor said the Legislature should appropriate more funds for a larger divided after it approved a single $1,000 PFD to be paid in October.

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