Gov: Budget reset needed to save economy
Gov. Michael J. Dunleavy’s underlying message about the State of Alaska budget deficit is much the same as his predecessor’s, but his plan to address it is vastly different.
Dunleavy stressed throughout a nearly two-hour talk in Anchorage March 26 that without major, durable spending reductions to close the $1.6 billion deficit the Permanent Fund dividend will disappear within three years.
He and members of his administration presented their budget plan alongside members of the conservative political group Americans for Prosperity, which sponsored and hosted the event at the 49th State Brewing Co.
Former Gov. Bill Walker’s message, starting in late 2015 when he unveiled his long-term fiscal plan, was that the dividend formula needed to be adjusted along with spending cuts and various taxes to preserve the payouts in some form.
The current governor campaigned largely on restoring the PFD to its statutory payment calculation, which if followed is expected to generate dividends in the $3,000 per person range this year. That money, he insists, is best spent individual Alaskans rather than using part or most of it to close the budget gap.
He also emphasized that long-term reductions to state spending would not dramatically harm Alaska’s currently fragile economy, which many of the state’s economists have said is ready to come out of a nearly four-year recession late this year barring major unforeseen events.
Numerous economists have said the nearly $3 billion of cuts that have been made since 2014, largely from reducing the capital budget to little more than enough to generate federal matching funds, have deepened and extended the recession that was triggered by the sustained fall of oil prices late that year.
The majority of jobs lost in the past four years have been in the oil and gas and construction industries.
Dunleavy noted that Alaska already has the highest unemployment rate in the country even with current state spending levels.
“We feel, for the sake of the private economy, to get that back on its feet and growing, what we need to do is reduce the government side of the economy, so that’s why you have our budget before you,” he said, adding that his budget plan would cost Alaska 600 to 700 jobs.
The Office of Management and Budget has calculated that Dunleavy’s budget proposal would eliminate 714 state positions.
However, economists routinely stress that Alaska’s economy is largely supported by government spending whether it comes from state or federal sources, which is common for relatively young economies.
The Anchorage Economic Development Corp. estimates that about 20 percent of the jobs in Alaska’s largest city are tied to government.
Economists for the University of Alaska Anchorage Institute of Social and Economic Research project the administration’s budget would result in roughly 7,000 additional jobs lost across employment sectors; those losses would be on top of the 12,300 jobs Alaska has lost since 2015, according to the state Labor Department.
Other economists have calculated that the plan to cut more than $700 million from the state’s Medicaid program would result in 8,000 job losses alone .
The administration’s chief economist Ed King testified to the Legislature in early March that the budget plan would likely mean about 5,000 fewer jobs statewide, but he said the losses would reset the state’s economy to a sustainable level.
Dunleavy echoed that sentiment March 26, saying that government money had inflated the size of the state’s economy.
“We get this budget under control, we’ll get more investment and we’ll get more revenue,” he said.
Walker often pointed to the fact that without a statewide tax, which Dunleavy rejects, economic growth is a drain on state services if it does not come in the form of oil revenue to state coffers.
OMB Director Donna Arduin said the administration is focused on cutting spending this year and reforming the state departments and programs hardest hit by budget cuts — K-12 education, the University of Alaska, Medicaid and the state ferry system — in the future.
She specifically said omnibus education reform legislation would be introduced in the coming weeks.
The governor acknowledged that reaching his goals would be challenging, adding that his three proposed constitutional amendments are needed to make it effective long-term. The amendments are to adjust the current spending cap, which Attorney General Kevin Clarkson said would be $10 billion this year, enshrine the PFD as a transfer payment rather than an appropriation, and require public votes for tax increases.
Adding those items to the state Constitution would give Alaskans a stronger voice in such major policy decisions, he said.
“I have a lot more faith in the people of Alaska than some of the special interests that don’t want you near a constitutional amendment,” Dunleavy said at the event.
Elwood Brehmer can be reached at [email protected].