Republican state senator predicts big changes to proposed state budget

A Republican state Senate leader said Monday there will be big changes in Gov. Mike Dunleavy’s proposed state budget and that this year’s Permanent Fund dividend will likely be smaller than the $3,000 check Dunleavy promised to voters.

On the budget, the governor himself has said, “It’s an open proposal,” subject to negotiation, State Sen. Natasha von Imhof, R-Anch., cochair of the Senate Finance Committee, told a business policy group in Anchorage.

There is virtually no support for Dunleavy’s spending plan due to its sharp cut to education, health and social services, the university and the state ferry system. “It will change for sure,” and all 60 state legislators will be deeply involved, Von Imhod told Commonwealth North meeting.

The key problem for legislators is that the governor is proposing a $1.6 billion cut from an operating budget of about $4.5 billion without providing information on his rationale, or on the impacts, which include a massive shift of education and other costs to local school districts and municipalities.

“We’re not getting a lot of explanation as to the rationale, such as why this cut and not another,” she said.

On the plan to tie up state ferries on Oct. 1, “what are the carrying costs? What will it cost to moor the ships?” On Medicaid, a shared state-federal program that provides health care to low-income Alaskan, the administration has to ask the federal government for permission to reorganize the program in order to reduce costs.

“But what if we don’t get permission from the Center for Medicaid and Medicare (a federal agency) by July 1 (the start of the fiscal year))? What do we do then?” The governor wants to use money remaining in a state reserve account as a backstop in federal permission doesn’t come, but legislators are not likely to support depleting state cash reserves farther than they have been already, von Imhof said.

To achieve a $3,000 PFD with the available state revenues from normal income, mostly from oil, and money drawn from the Permanent Fund’s earnings reserve under a law passed last year, spending would indeed have to be cut $1.6 billion.

David Teal, director of the Legislative Finance Division, told the Senate Finance Committee last week, that the governor’s budget, as introduced Feb. 13, achieves the $1.6 billion reduction by transferring about $520 million of the cost to local governments, using state reserve funds to pay $352 million, by reducing funds to state operating agencies by $650 million, and not funding $107 million in budget additions proposed by outgoing Gov. Bill Walker as he left office in December.

But if all of the proposed cuts were made the cost of that to the state’s economy would be heavy, Teal said, with possibly 5,000 jobs, Teal said. That would include not only state agency workers laid off but also faculty and staff at the University of Alaska and workers in the state ferry system.

The effects of that on the economy will be severe, and it will deepen the current recession just as it appears to be leveling out.

Economists from the university’s Institute of Social and Economic Research and the administration’s own Office of Management and Budget wlll present a more detailed look at economic effects Wednesday and Thursday, March 6 and 7, in presentations to the Senate and House Finance committees in Juneau.

Von Imhof said what is likely is the Legislature developing its own budget that would include cuts but also a PFD. Teal said that the current budget could be funded with no reductions if the PFD were in the $400 range, but that may be politically difficult after several years of $1,000-plus dividends.

What might be acceptable in the Legislature is a budget with cuts in the $300 million range and a $1,000 PFD, von Imhof said. What’s unknown is whether the governor will go along with that, she said.

Von Imhof acknowleged that Dunleavy’s game plan might be just to shock the system so thoroughly that substantial budget cuts become possible that the Legislature has been so far unable to do. The reductions would be more modest than the $1.6 billion, but they would still be substantial.

“Dunleavy could be playing a brilliant game or one that Is completely reckless,” in damage to the economy, von Imhof said. “We won’t know what he’ll do until we pass a budget and he uses his veto pen.”

If the governor’s plan is really to force change but at a more moderate level the Legislature will be able to finish its work in 120 days, the limit for a legislative session set in the state constitution, she said. “But if he’s serious about getting the whole budget (cuts) we’ll be here through July, August and September,” in special sessions.

The timing for the Legislature’s own work on the budget is for the House to complete its work in the budget subcommittees, a process in which the Senate is further along because it started earlier, with the House passing the operating budget to the Senate in early April, von Imhof said.

That would allow the Senate to approve its version by mid-to-late April, leaving two to three weeks for a conference committee to work out differences.

During that time there will be negotiations with the governor on the budget and the size of the dividend.

What’s encouraging is the level of cooperation that is developing between the Republican-led Senate and a House led by a coalition of Democrats and Republicans, von Imhof said. “Cathy Giessel (the Senate president) and Bryce Edgnon (the House Speaker) are already starting to meet. “They’re telling each other, ‘let’s work together,” she said.