Dunleavy’s budget will spur an exodus from Alaska, but is it intentional?

I’ve said it before and I’ll say again, one of the beauties of living in Alaska is the ability to access state officials. On Friday, Gov. Mike Dunleavy and his small entourage stopped by the Frontiersman for about a 40-minute chat on everyone’s favorite subject — the budget.

The governor didn’t shy away from any questions and some of his answers were very frank.

“A $1.6 billion deficit,” was generally his response to most questions but the Frontiersman editorial staff wanted him to give us his perspective of how his budget would affect the Valley and particularly property owners. As the state takes away funding it will be up to local government to come up with a solution to either fund or reduce expenses. Jobs and growth are at stake.

The governor’s overall vision is obviously to get the budget under control – expenses matching revenue — no PFD cuts unless the voters tell him to, and no new taxes. He stopped short of doing the ‘read my lips’ bit.

“Our approach is reductions. The previous administration looked at taxes and the PFD and using savings. The past four years we spent $14 billion dollars out of savings to fund this budget. That can no longer be supported by the revenues it’s bringing in and so our approach is to stop the hemorrhaging in the savings,” Dunleavy stated.

The governor went on to say if we get our fiscal house in order then the private sector will get off of the sidelines and begin investing. He stated he was in Houston, Texas, and there he got the sense that investment would come and the producers would invest even more in the North Slope. One goal would be to reduce energy costs to Alaskans thinking that this would be a game changer for the entire State. With the abundance of energy in Alaska the people are not receiving a premium in terms of inexpensive energy costs. He named electrical costs in particular. He believes that reducing these costs will attract investors and that will result in more jobs in Alaska.

When asked about shifting the burden of funding to the municipalities and the pressure that would put on the local tax base he responded with, “There is impact and pressure on everyone. All sectors of Alaska whether you’re a municipality or an unorganized borough or the state itself. Because it’s a $1.6 billion deficit it’s going to impact everybody. I often times believe these issues are best solved at the local level.”

The governor was asked if he felt he had to be aggressive in proposing his budget with these drastic cuts. In his response he stated that because of the size of the deficit he had to be realistic if we were going to have a true balanced budget.

During the Mat-Su Borough meeting concerning the governor’s budget, Mat-Su Borough Mayor Vern Halter expressed disappointment with losing funds on school bonds that when passed in 2011 the state promised to pay 70 percent. Dunleavy was on the school board at the time. Halter stated he felt the state was now reneging on that promise.

“Some have said we are reneging on long-time programs and services. Again, running out of savings in 14 months we will have nothing else to spend.” Dunleavy replied.

“If the House and Senate can come up with other ideas to reduce the budget — I don’t think they can because we’re facing the same deficit — We’re certainly eager to see what they come up with but the long and short of it is across the board we tried to some extent to look at as many services and outlays as possible to reduce or pull back so that we could close this deficit and move forward. The issue is do you reduce, tax or take the PFD?” the governor posed.

Will Dunleavy be flexible when it comes to using some of the PFD to reduce the deficit?

“If the people of Alaska want to use their PFD to cover this deficit then I am perfectly fine with that. I’ve always contended that the people of Alaska have to be part of the permanent fiscal plan by getting a vote on this. Whether it is a constitutional amendment change that there are no changes to the PFD without the people of Alaska or at the very least an advisory vote. I keep hearing some people say everyone is willing to use their PFD. If that’s the case then great let’s send it out for an advisory vote and get that taken off us and get it this behind us,” he responded.

The people of Alaska have the power to repeal anything that is done by the State. According to Dunleavy they’ve done it before. His goal is to have the people involved up front. That’s why he would want an advisory vote. Whether it’s paying down the deficit with their PFD or through taxes if that’s what the people want then it will be quickly implemented according to the governor.

Will the governor use his veto powers concerning the budget when it is returned to him?

“If the legislature does not want to pass the three constitutional amendments that we put forward, to me that means that they do not want to engage with the people of Alaska, so that leaves me little choice but to use the red pen,” he said.

Is it fair that local property owners in the borough would have to pay for additional services that are cut as opposed to an income tax or a reduced PFD so that everyone shares the cost?

The governor pointed out that he pays high property taxes in the Mat-Su Borough and would like to see the borough reduce the pressure by making reductions.

“It’s a mathematical issue. Is it fair to take the PFD? Is it fair to impose a $1.6 billion tax on folks? We’ve done some preliminary estimates. If you’re looking at 300,000 people who are working individuals in the state of Alaska to close this $1.6 billion gap, that’s $5,000 to each individual that’s working. That’s a $10,000 tax on a working couple. That might precipitate an outmigration bigger than we already have,” he explained.

There has been some speculation that through this budget the governor actually wants to depopulate the state. I asked him to comment on this speculation.

He responded with a tongue-in-cheek remark.

“I would put that in the category of I’m a racist, I don’t like women. My wife’s native and I have all girls. It’s nonsense,” Dunleavy snarked.

Clearly the topic bothered the governor because much later in the interview he asked me to explain what the logic would be for depopulation. I explained it as I’ve heard it; that a reduction in population then would match the amount of service the budget would allow.

There are many sectors of the current economy that will be affected by the proposed budget, not only a personnel reduction in the largest employer in the Mat-Su, the school district, but also the fastest growing industry in the borough, the medical field. This budget could have a tremendous effect on the growth we have seen in the borough.

“A lot of it was through the Medicaid expansion, so health care has grown in Alaska as a result,” said Donna Arduin, Director for the Office of Management and Budget. “But a lot of it is government-driven.”

Maybe so, but before the expanded medical services in the Valley, patients used to have to go to Anchorage or out-of-state to get adequate medical care. Without the expanded Medicaid program, which the state pays 5 percent and soon to be 10 percent, there is a real concern that the expansion will stop. It’s not all government-driven. The private sector is doing the building, which results in more property tax participants locally.

Whatever this budget looks like in its final form, it’s clear that if these cuts are sustained then Alaska will no longer be the state we see today. Whether depopulation is the goal or not, and judging by the Governor’s response I don’t believe that is his intent, but clearly out-migration will happen. Depending on your perspective that may be a good thing or bad thing.

The people of Alaska are at a crossroads and maybe they will get their say in a vote. Do you want your PFD? For some it means they will lose their jobs and for others it will be loss of services. Do you want an income tax and some kind of reduction in PFD? Do you want no PFD? None of these decisions are easy, but at least this way the people will have spoken.

When it comes to budgeting — and I have constructed many, though of course none of this magnitude — the art is to create revenue while reducing expenses. There’s an old saying, ‘You can’t cut your way to prosperity.’