Additional deep cuts to state services are unlikely, say key senators

Gov. Mike Dunleavy’s proposed budget and 10-year fiscal plan rely on a lot of things that didn’t make an appearance in his State of the State address: It calls for $1.2 billion in new revenue starting next year, its “cuts” are largely just infusions of one-time federal CARES Act money and, among many other things, it calls for $400 million in cuts to services over the next several years.

Members of the Senate Finance Committee, which has hit the ground running on the budget, have met much of the plan with what has ranged from skepticism to outright frustration, calling the budget misleading, unrealistic and lacking leadership.

The lack of leadership on new revenue has been particularly rankling for senators, who recognize the logistical issues of implementing a new tax system would mean it needs to be approved and implemented this year. Instead, the governor has focused on legalized gambling and passing a constitutional amendment that would make it harder to pass new taxes. 

It’s the same for that proposed $400 million in cuts to be made over the next few years.

Senate Finance Committee co-chair Sen. Bert Stedman, R-Sitka, called it unrealistic during today’s hearing with the governor’s budget director Neil Steininger and said that counting on those cuts to materialize would continue to paint the state into a corner. 

“If we don’t attain the $400 million in budget reductions, we’re going to be two more years into this and in an even weaker cash position with even less flexibility to solve the problem,” he said. “I’d like to have the committee consider if those $400 million in reductions are not obtained and what are we going to do? I have yet to see and we’ve questioned and asked the administration for policy change recommendations … to materialize this $400 million. We’ve also expressed interest to our colleagues that if they have ideas for reductions to bring them forward. … I think it’d be frankly a mistake to assume that we’re going to deliver $400 million in reductions when in the last four years there’s been virtually zero.”

Stedman reflected that after nearly a decade of cuts to services—which have hit things like the University of Alaska and the Alaska Marine Highway System particularly hard—have largely stalled out in recent years. He noted that even Dunleavy’s severe first-year cuts were largely reversed either through political pushback or, as was the case with cuts to Medicaid, because the cuts were never realistic in the first place.

As Dunleavy pushes the Legislature to overdraw the Alaska Permanent Fund by $2 billion $3 billion over the spending limit set by legislators in recent years, Sen. Lyman Hoffman, D-Bethel, said last week that legislators are increasingly wary about unknowns in the budget. Such a draw would cut future investment revenue by an estimated $160 million annually, forever, Legislative Finance Division Director Alexei Painter told the committee today. Stedman said he believes it’ll pose problems for the fund’s investment strategies. 

“I’m not interested in a solution that liquidates the permanent fund,” Stedman said. It’s not a solution at all.”

Both Hoffman and Stedman, who as co-chairs of the Senate Finance Committee under the oil rich years of the Senate Bipartisan Coalition put more than $16 billion in savings, stressed that a fuller picture is needed as they grapple with what’s ahead of them in the next few years.  Without cuts to the scale that Dunleavy proposes, for example, paying such a large dividend this year would require even more revenue or bigger changes to the PFD in future years. 

“I think we need to clearly recognize that the ability for us to reduce $300 or $400 million is minimal,” Stedman said. “We need to prepare the state for that inevitability and not just ignore it and hand the next governor less cash and a big hole. Are we going to loot the permanent fund, are we going to tax the citizens or are we just going to start closing down departments?”

After quipping with Steininger earlier in the meeting about eliminating the governor’s office to trim the budget, Stedman said there would be similar pushback for nearly ever other corner of state spending. Stedman reiterated that he believes some cuts are attainable—and that they’re open to any rational, workable ideas—but noted that if it was as easy as Dunleavy seemed to suggest, it would have already happened. 

As for the governor’s 10-year plan, Stedman said the committee would “throw it out the window” and focus on a plan that gets the state through the next few years. Though Senate Republicans are not bound together on any legislative priority, Stedman said he has no appetite for dipping deep into the Permanent Fund. 

“It’s not going to be endless dividends for everybody with no taxes in the world of a utopia because it doesn’t exist. We’ve got to deliver services, deliver a dividend and not deplete the state’s fiscal position for future generations,” he said. “That’s the balance we have to achieve at the table. But until we see concepts at this table that are reasonably attainable it would be, in my opinion, foolish to go down that road assuming they’re going to materialize.”