Gov. Mike Dunleavy

Gov. Mike Dunleavy now has what are likely final state budget bills before him. The governor can either sign the bills, exercise modest vetoes of spending, or do what he did earlier this summer — cut deeply enough to achieve or come close to targets for a sharply reduced budget he set last spring.

State legislators adjourned their special session Aug. 6 after restoring most of the budget cuts made by Dunleavy. They also denied the governor his $3,000 Permanent Fund Dividend, which he had campaigned for in elections last fall.

Lawmakers did approve a $1,600 PFD for 2019, approximately what was paid in 2018. Dunleavy can veto amounts of spending from the budget but he cannot increase the dividend — only the Legislature can do that.

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The governor may be in a political dilemma over this. He campaigned heavily on the “fully-funded” PFD and if he is seen as unable to deliver it some say he risks the start of an erosion of his base of support, some political observers say. That base, mainly older Alaskans in non-Native communities like Mat-Su and Kenai Peninsula outside Anchorage, is already under stress due the governor’s cuts to programs like senior benefits and rate increases at the Pioneer’s Homes.

Dunleavy’s other base of support, besides the group of Alaskans supporting the $3,000 PFD, are the conservative groups like Prosperity for Alaska that supported him, and which placed a group of advisors around him like budget director Donna Arduin. Many voters also supported the governor’s “leaner government” agenda. If he exercises only modest vetoes, he risks his credibility with this group of supporters.

It’s possible Dunleavy may yet negotiate a deal on the $3,000 PFD in a special session legislators have asked for later this year. The tradeoff could be a restoration of many spending cuts, such as to the state university, in return for the larger dividend.

But is this is not possible and the governor again imposes deep cuts — most legislators seem now to have taken a firm stand for the smaller PFD — Dunleavy risks pouring gasoline on a boisterous recall campaign that got underway in several Alaska communities last week.

Recall organizers claimed to have gathered over 10,000 signatures within nine hours of the Aug. 1 launch. Organizers of the effort need 28,501 signatures to take the petition to Lt. Gov. Kevin Meyer for certification, which would then launch another signature drive to actually call a special election to recall the governor. More signatures, about 80,000, are needed apart from the first round to accomplish that.

On the budget bills the governor has until Aug. 30 to exercise vetoes on the bill that restores the cuts and sets a $1,600 PFD, HB 2001. Dunleavy can veto parts or all of the bill. He is also still considering the state capital budget, SB 2002, which funds mainly construction and provides the needed state matching money to almost $1 billion in federal transportation funds. Dunleavy told reporters in Juneau he would decide on vetoes to the capital budget, SB 2002, by Friday, Aug. 9.

The capital budget also contains a provision doing a “reverse sweep” to restore money taken from about 54 special accounts set up to support specific programs like rural Power Cost Equalization, which supports residential electricity rates in small communities, as well as University of Alaska scholarships and a vaccine fund that would help combat disease outbreaks. Under a provision in the state constitution all special funds are “swept” at the end of the fiscal year and placed in the Constitutional Budget Reserve, a protected fund that requires a three-quarters vote of the Legislature to get the money back out.

Normally the Legislature votes a reverse sweep as a part of the final budget action to restore the accounts but this year the House Republican Minority refused to support the reverse which meant the three-quarters needed could not be achieved. The House Minority was withholding their votes until the House Majority, and the Republican-controlled state Senate, agreed to a $3,000 PFD.

They did not do that, and the House Minority’s attempt ultimately failed. The reverse sweep gained the needed votes in SB 2002 and was approved.

Had the reverse sweep not been accomplished, and the special funds remained empty, the governor promised to make the needed payments for Power Cost Equalization, scholarships and other programs as part of the general fund budget, but there was uncertainty about that.

The governor has said he will not veto the reverse sweep section of SB 2002, but other parts of the bill may still be vetoed.

While it’s unknown whether the budget reductions desired by Dunleavy will really happen — it depends on his final veto decision on HB 2001 — the Anchorage Economic Development Corp. has warned that the cuts, if they occur, could have the effect of extending the state’s current recession for another three years

“Significant cuts to the State budget, as they stand now, essentially eliminate any chance of economic recovery and in fact promise to keep the local economy in recession for two to three more years. As we look ahead, while the news is not all bad, sources of renewal in the economy cannot compensate for the damage being done by Alaska’s ongoing policy-induced recession,” AEDC said in its forecast.

The forecast called out specifics budget actions that will be most damaging: “The (threatened) $138 million reduction to the University of Alaska (UA) budget will be particularly damaging in the near and long-term. How UA administrators address a 40 percent budget cut remains to be determined, but major program and staffing reductions will be required. In addition to harmful near-term economic impacts, significant cuts to the university system will stunt Alaska’s continuing efforts to build a high-quality, resident workforce. Many Alaskan students and instructors may well seek more secure opportunities elsewhere in the country,” AEDC said in a statement published with the forecast.

Health care will also feel the effects. “Cuts in Medicaid funding (including loss in federal funds) total over $77 million. The health care sector has been the source of steady employment growth statewide and in Anchorage over the past decade. That growth has already slowed and cuts to Medicaid are likely to result in the first losses in health care employment in more than a decade,” the statement said.

Health care and social services account for about 25,000 jobs in Anchorage and $1.4 billion in annual wages, AEDC said.

But the economic news is not all bad, the AEDCV acknowleged, because not all industries are adversely affected by the state budget drama.

Petroleum jobs, which fell off sharply in 2016 and 2017 when oil prices and state revenues dropped, are showing recovery with new oil discoveries on the North Slope. Construction is showing an increase with continuing repair work from the earthquake last November and a surge of military construction in Interior Alaska. Also, employment in professional and business services, a category that includes engineering and professional fields like environmental services, has stabilized after several years of decline. As jobs increase in petroleum and construction, and if new mines that are planned move ahead, jobs in support fields like engineering will increase.

One new mine at an advanced stage of planning is a large gold mine at Donlin Creek, near the Kuskowim River west of Anchorage.

Steady growth in the tourism industry is also reflected in increases in hotel, restaurant and transportation service employment. Still, employment in all of those has not returned the state’s total jobs to levels in 2015, the year oil prices and state revenues dropped sharply.

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