Dunleavy follows through with massive budget vetoes

Jun. 28--Gov. Michael J. Dunleavy followed through on many of his budget proposals but faltered on some of his other stated priorities when he announced his state budget vetoes June 28.

The governor vetoed $410 million in General Fund spending from part or all of 182 items in the Legislature's 2020 fiscal year state operating budget before signing it.

He said in a press briefing that his reductions, when combined with the $280 million in cuts the Legislature made, get the state about halfway to a balanced budget.

Dunleavy has prioritized paying full, statutorily calculated Permanent Fund dividends and balancing the budget without adding state revenue.

Collectively, the budget cuts total nearly $700 million and get the state almost halfway to closing what started as a roughly $1.6 billion budget deficit for the 2020 fiscal year that started July 1.

"Next year it's our goal to complete this process and completely close the gap," Dunleavy said. "I believe we're on our way to having a balanced budget."

With the vetoes, the 2020 budget is about 12 percent less than the current year budget, which ends June 30, and the lowest level of state spending since 2005, according to Office of Management and Budget Director Donna Arduin.

The University of Alaska absorbed the largest cut from the governor's red pen, with a reduction to the Anchorage and Fairbanks campuses of $130 million -- as Dunleavy first proposed in February -- after the Legislature reduced the UA budget by $5 million.

The cuts take state support for the university system budget from $327 million to $191 million, or a 42 percent cut.

The state's UA appropriation, which comprises about 40 percent of the overall university budget this year, peaked at $378 million in 2014 and has fallen since as the Legislature and governor deal with the impacts of lower oil revenues.

OMB officials noted the cuts don't impact community college campuses around the state or the University of Alaska Southeast. Those institutions provide the type of career and technical training the governor hopes to expand in Alaska.

They arrived at the $130 million cut for the main campuses by first starting with the national average state contribution to higher education of about $7,600 per student and added a 40 percent Alaska cost adjustment to get to funding equivalent to about $11,000 per student. According to OMB, UAA is roughly at that level currently, while UAF funding is about three times that level.

Dunleavy said he thinks the UA System can be transformed into a "smaller, leaner, but still very positive, productive university."

"This budget is going to impact all of Alaskans," Dunleavy said further. "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 work through this and I believe they can turn the University of Alaska into, if not the finest university of the Arctic, in a few select areas -- they can't be all things to all people."

UAF is widely regarded as the world's leading Arctic research institution and UA President Jim Johnsen has said each dollar of state support translates to $6 of outside investment in research for Fairbanks.

He called the cut "devastating" to the Anchorage Daily News and furlough notices have been sent to 2,500 UA staff.

Dunleavy also cut $50 million from the state's general Medicaid appropriation on top of a more than $70 million cut by the Legislature.

The administration originally proposed a $225 million cut to Medicaid this year but eventually backed off that stance. Department of Health and Social Services officials previously said they could achieve $102 million in savings through provider rate reductions and other regulatory actions that do not require legislative approval.

The governor also vetoed $8 million of state funding for preventative adult dental treatment under Medicaid, which equates to a loss of $18 million in federal funds.

Alaska State Hospital and Nursing Home Association CEO Becky Hultberg, who has been roundly critical of the administration's plans to cut Medicaid support, said the governor's vetoes are "arbitrary" and could actually lead to additional costs in future years.

"The governor's own department has been unable to identify how to implement cuts of this magnitude, which calls into question the Department of Health and Social Services' ability to reduce costs without cutting the Medicaid program," Hultberg said in a formal statement. "Alaskans deserve a more complete explanation of these reductions. Since the Medicaid program is statutory, benefits must be provided. Further cuts will simply result in the need for supplemental funding next year, delayed payments to providers, and reduced access to care for vulnerable Alaskans."

She has previously told the Journal that major Medicaid cuts not tied to programmatic reforms could result in the closing of small, rural health care facilities that don't have the financial base of larger hospitals.

DHSS is currently awaiting the results of a consultant study on ways to further reduce Medicaid spending.

Dunleavy did not veto the Alaska Marine Highway budget beyond the Legislature's $44 million cut, which will allow ferry managers to run a bare-bones sailing schedule through the winter. Dunleavy had previously proposed a $95 million cut to the state ferry system and shutting down service completely this winter.

And while the governor has stressed a need for lawmakers to "follow the law" in regards to the PFD, he diverted from that principle himself with several of his vetoes.

He eliminated $3.4 million for the Ocean Ranger program -- which regulates cruise ship activity in Alaska waters and is paid for through passenger fees, not state dollars.

The Ocean Ranger program was established via a 2006 voter initiative. It's funded through a fee on cruise ship passengers that travel to Alaska. The vetoed funds for the program remain in the General Fund.

He also vetoed more than $21 million for the Senior Benefits program and halved the state's school bond debt reimbursement appropriation to $48.9 million; in a fact sheet accompanying the vetoes, Dunleavy defended the cut to debt reimbursement by citing the "subject to appropriation" clause in the law. In the same sheet, he said the senior benefit veto "eliminates" the program.

Local government officials from across the state have said cutting the bond debt cost-share, which is spelled out in state law, would lead to higher local property taxes.

"I believe the communities are going to have to make decisions on how they deal with that," he said at a press briefing in response to a question about the cut.

Dunleavy largely avoided questions regarding how his moves to de-fund programs still on the books levels with his emphasis on following state laws but noted that his administration proposed repealing many of those programs; those proposals were rejected by the Legislature.

He also vetoed $1 billion from the $2.9 billion percent of market value, or POMV, draw from the Permanent Fund to pay PFDs and support government services. The move was made to keep the $1 billion out of the General Fund and leave it in the Permanent Fund for paying PFDs that are expected to cost $1.9 billion based on the current formula.

He also vetoed $5.5 billion of the $9.5 billion one-time transfer the Legislature planned to make from the spendable, currently $19 billion Earnings Reserve Account to the constitutionally protected corpus of the $65 billion Permanent Fund.

He said the full transfer put the ability to pay future PFDs at risk.

"We need to provide for a 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," Dunleavy said to a question about he justifies his vetoes that don't follow some state laws.

Meanwhile, legislators were gathered in Anchorage for a meeting of the Bicameral Permanent Fund Working Group, which was established several weeks ago to hopefully find a resolution to the ongoing battle over the PFD and how to use the earnings of the fund without damaging its long-term value.

Senate Democrats denounced the governor's decisions in formal statements.

"Gov. Dunleavy simple doesn't value public education in Alaska," said Senate Minority Lead Tom Begich, D-Anchorage. "The majority of his cuts cripple our university system, which should be a world-renowned leader in Arctic and global research, and takes away certainty from public schools, educators and families."

House Speaker Bryce Edgmon, I-Dillingham, said the Legislature's budget "struck a balance" between funding essential services and necessary cuts.

"Today, the governor made major vetoes that will have drastic, negative impacts on all Alaskans. The fundamental question is now squarely before Alaskans. What's more important: a healthy economy, our schools, university, and seniors, or doubling the Permanent Fund dividend at the expense of essential state services? The governor has made his choice clear," Edgmon said.

Whether or not the Legislature will override some of the vetoes is unclear. Veto overrides require support from 45 of 60 legislators, an intentionally high bar set in the Alaska Constitution.

Legislators and their staffers gathered in Anchorage for the Permanent Fund meeting said they needed time to evaluate all 182 line-item actions before determining which, if any, of the vetoes there is support to override.

The Legislature is set to convene July 8 to consider this year's PFD -- with the location still being disputed between Wasilla as the governor has called for or in Juneau as a majority of lawmakers want -- at which point the larger budget questions should start to be answered.

Elwood Brehmer can be reached at [email protected].

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