Latest Dunleavy budget pitches stimulus, cost-shifting

Gov. Mike Dunleavy prioritized injecting money into a battered economy over solving the state’s ever-worsening structural fiscal problems in his 2022 fiscal year budget but that doesn’t mean he didn’t attempt to save the state some money.

The administration wants to split nearly $50 million in unrestricted CARES Act funds into $35 million towards the state’s annual Medicaid payment and $14.6 million for general Department of Transportation funding as well as utilize $101 million of Alaska Housing Finance Corp.’s bonding authority for capital projects as ways to cover some of the 2022 budget deficit pegged at approximately $2.4 billion by the Legislative Finance Division.

Aside from spending roughly $3.2 billion on Permanent Fund Dividends over the next 12 months, the governor’s plan would cut state operations spending of about $4.6 billion by $294 million, or about 6 percent, according to Office of Management and Budget documents.

Legislation to move about $94 million of the state’s overall employee retirement expense — of late about $350 million — to state agency payroll costs with the expectation the federal government would then cover the pro-rated retirement payments for the many state positions funded at least partly by federal money is in the works for next session.

The bill would also raise the employer contribution from a current 22 percent cap to an actuarial rate of about 30 percent for 2022 for State of Alaska participants in the Public Employee Retirement and Teacher Retirement systems that also cover many local government workers across the state.

OMB Director Neil Steininger stressed during a Dec. 18 online gathering of the policy group Commonwealth North that the bill would only raise the employer contribution for the State of Alaska.

The reshuffling in the bill would allegedly save the state about $43 million per year in retirement contributions subsequently picked up by other entities, mostly the federal government.

Steininger noted that K-12 education is flat funded at the per-student level in the governor’s budget, but fewer students means a smaller overall expense.

“It’s a fully funded formula that results in a budget reduction,” he said.

The base student allocation has been $5,930 since 2017, though the Legislature periodically adds K-12 funds outside of the BSA formula.

Statewide K-12 attendance is projected to drop by nearly 2,000 students to a daily average of 126,931 students next year.

Dunleavy’s budget would cut the state’s total Department of Education and Early Development budget by $27 million, or just more than 2 percent.

The governor is also proposing funding the state’s portion of the recently contentious school bond dept reimbursement program at half of the state’s historical obligation, or $41.8 million, as was the case in fiscal year 2020.

After lawmakers and the administration had their nearly $1 billion plan to sell bonds to pay off the state’s oil and gas tax credit obligation unanimously ruled unconstitutional by the Alaska Supreme Court earlier this year, Dunleavy is proposing a return to paying the minimum annual statutory formula payment of $60 million in 2022, a move many Republicans roundly criticized when it was first made by former Gov. Bill Walker in 2016.

The $60 million would come out of the Alaska Industrial Development and Export Authority’s large Revolving Fund, according to the budget bill.

Dunleavy is proposing general funding for the Alaska Marine Highway System be cut about $3 million, or just more than 5 percent, as ferry system managers attempt to implement cost-saving recommendations made by the governor’s AMHS Reshaping Work Group this year, according to Steininger.

While the administration has yet to release its final wish list for the $350 million bond package the governor announced with his budget, Steininger said the emphasis will be on “shovel-ready” projects.

“What we’re looking for is (construction) jobs that will put people to work,” he said.

Over the longer-term, the administration is looking to develop infrastructure that will lead to additional project development, such as the multiple roads to mining districts the state is currently advancing.

There is likely to be broad support in the Legislature for the general concept of a mid-sized project bond package given the state’s $2 billion and growing deferred maintenance backlog, but finding agreement on which projects are included will be the primary challenge.


Dunleavy formally pitched splitting the Department of Health and Social Services into two cabinet-level agencies Dec. 22 as a purportedly cost-neutral way to improve outcomes across the current department’s long list of programs.

“The idea is to be able to make sure these programs do what they’re supposed to do with better oversight as opposed to a large, stodgy department,” Dunleavy said during a press briefing.

The reorganization would put five current DHSS divisions into the Department of Health and another four into the Department of Family and Community Services. Each department would also receive a finance and management division, according to the governor’s office.

Dunleavy said it would not add cost to state operations, but administrative expenses associated with the move weren’t immediately available.

“It’s really a management issue in terms of redesigning the Department of Health and Social Services,” he said.

DHSS currently has about 3,500 employees and a state general fund budget of more than $1.2 billion.

“Any attention to one division is diverted from another,” DHSS Commissioner Adam Crum said of the current structure during the briefing.

An executive order Dunleavy will submit to the Legislature would enact the split for the July 1 start of the 2022 fiscal year. The Legislature has 60 days to reject the proposal or it becomes law, according to the governor’s office.

Elwood Brehmer can be reached at [email protected].

12/23/2020 - 9:13am