Governor announces state budget cuts

Gov. Mike Dunleavy rolled out a shrunken state budget plan on Wednesday, Feb. 13, with $1.6 billion cut from a budget proposed earlier by former Gov. Bill Walker. The budget has a sweeping set of reductions that would slash money for the University of Alaska, the state ferry system and a restructuring state health and social services programs that would include reductions in payments to medical providers.

“This budget is balanced,” Dunleavy said. “There are no new taxes, no draw from the Constitutional Budget Reserve and the draw from the (Permanent Fund) earnings reserve is that authorized by statute,” a reference to the percent-of-market-value draw authorized last year in Senate Bill 26.

Details on the reductions have been slow in coming. Among state agencies to be consolidated, it appears the Division of Agriculture, based in Palmer, would be phased out with many of its employees transferred to the Division of Land and Water management.

The University of Alaska would be hit hard, with a $155 million cut from its current budget. University President Jim Johnsen warned that as many as 1,300 employees, including faculty and staff, may be laid off if the cuts hold. A wholesale restructuring and downsizing of the university would be needed including the termination of programs and closure of campuses.

In K-12 education, a proposed cut to the Base Student Allocation, in the formula that allocates money for school districts, would reduce the BSA from $5,900 to $4,800 per student. This would leave the districts including the Matanuska-Susitna Borough School District struggling to make up the money, or to cut programs. “We believe the discussion of (school) cost should be at the local level,” Dunleavy said at the press conference.

State ferries would also see reductions, and although no details were offered. Dunleavy said there were proposals to privatize part of the state’s marine highway system.

At this point there in no plan to “roll back” the expansion of Medicaid, the state-federal program that provides health care to lower-income Alaskans, but Dunleavy said there may be discussion of that in the future.

About 700 state permanent and part-time employees would be eliminated under the plan, but there would be additional reductions, possibly as many as 1,300, from the University of Alaska system. The plan also proposes to send 500 inmates from Alaska prisons to out-of-state correction facilities, state budget director Donna Arduin said.

In other changes, municipalities will be restricted from taxing oil and gas properties, which are subject to a 20-mil state property tax. Under current both the state and the municipalities tax petroleum property, such as pipelines, with the oil company taxpayers allowed to deduct the local tax from the state tax.

Dunleavy would bar municipalities from levying a tax, arguing that this tax base should be reserved to the state and not shared with local governments, as it is now. The North Slope Borough and the City of Valdez are most affected by this, but the Fairbanks North Star Borough and the Kenai Peninsula Borough are also heavily affected.

One other change, which will help municipalities, will be to share state alcohol tax revenue with local governments, however.

Another change proposed is to eliminate the Power Cost Equalization Fund, an investment fund established as a kind of endowment to support the Power Cost Equalization program that supports affordable residential power in small communities around the state. The money, which totals almost $1 billion, would be rolled into the state general fund.

It is unclear what would happen to the PCE payments.

Dunleavy said he expects a “robust” discussion with the Legislature on the budget proposals. “This is the beginning of a journey. I believe everyone knows we have to get our house in order. If we don’t act now, we’ll be through our reserves in a few years, and the PFD will be in jeopardy,” Dunleavy said.