Legislators skeptical of Dunleavy’s budgeting

The Alaska Capitol Building.

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The first few weeks of any legislative session is marked with plenty of hearings reviewing the biggest legislative lift for the session: The Budget.

With big decisions about the course of the state’s financial future, lingering structural deficits and a huge influx of one-time federal money, this Legislature faces even bigger questions and challenges than usual. That’s in no small part because Gov. Mike Dunleavy and his administration have opted for a picture that many legislatures say is overly optimistic and overly reliant on one-time money in a way that masks the true problems facing the state from legislators and the public alike.

The governor’s budget roll-out got him headlines suggesting that Dunleavy has achieved the balanced budget that has eluded legislators and governors for much of the past decade.

As legislators get to work in understanding the budget, they plan to cut through the election-year rhetoric to understand what’s really going on once you take off the rose-colored glasses. Here’s a recap of two such efforts from this week:

House Ways and Means digs into Dunleavy’s 10-year plan

The House Ways and Means Committee kicked it off with an overview of Gov. Mike Dunleavy’s 10-year plan for the state.

It was a rangy meeting but the main takeaway is that the governor’s outlook balances only with some pretty significant and austere parameters. Namely, the state’s infrastructure would continue to age, costs would continue to be shifted onto local governments particularly around K-12 education and overall growth of state government would somehow be held well below inflation at 1.5% annual growth only starting in calendar year 2025. The outlook for the state’s Medicaid budget, one of the biggest factors in the budget, would also only grow by 1% annually according to the governor’s plan.

How this comports with the 7% inflation experienced last year was a significant question for legislators and there was no satisfying answer from Dunleavy budget director Neil Steininger. Steininger mostly argued that because the size of government has largely been driven by access to revenues, the absence of revenues in future years will necessarily force the government to make cuts to services and other areas… basically forever (so it’s not really growth and it’s not even keeping up with inflation). After much questioning, he conceded that the 10-year plan is just a set of policy assumptions and not set in stone.

When Legislative Finance Division Director Alexei Painter got to present, he offered an analysis of the budget with a somewhat more realistic annual growth factor of 2% that also assumed a more realistic slate of policy decisions moving forward, which showed that the state’s deficit would quickly grow to several hundred million dollars that would, you guessed it, require an overdraw from the Alaska Permanent Fund starting in fiscal year 2025.

While the governor’s budget doesn’t call for an overdraw in this year—his desire to overspend the Permanent Fund has eased with the arrival of hundreds of millions of dollars in one-time federal money—the presentation suggests that it’d be on the horizon with no real plan.

Rep. Calvin Schrage, I-Anchorage, made a point of this. He argued that by offering an unrealistic picture of the state’s financial future, it’s preventing the state and its citizens from taking reasonable measures now—like savings surpluses, making changes to government and considering new revenues—that will guide the state well into the future.

Connecting the dots: It certainly puts Monday’s Legislative Budget and Audit Committee hearing with Craig Richards, the chair of the Alaska Permanent Fund Corporation’s Board of Trustees, into new light. While the marquee issue was obviously the still-unexplained termination of executive director Angela Rodell, there was quite a bit of attention from legislators on the fund’s frequent efforts to model the potential impact of overdraws on the fund… a move that they are still ostensibly opposed to (and that Rodell, in particular, was strongly opposed to). The takeaway from was that the board ordered new analysis of the overdraws until, essentially, it got an answer that aligns with Dunleavy’s proposal to overdraw the fund.

I have a feeling that none of this will go away anytime soon. Despite Richards’ best effort to convince the Legislature that there’s nothing to see here, the Legislature is going to keep on digging.

And they should.

New year, old beefs

It’s no secret that the Sen. Bert Stedman, co-chair of the Senate Finance Committee and overseer of the budget, is not a big fan of Gov. Mike Dunleavy and the administration’s tendency to offer up only the most flattering and politically expedient pictures of the state’s financial position. Stedman’s also not a fan of the governor’s plans to overspend the Alaska Permanent Fund or smooth over deficits with one-time money, calling them efforts to shortchange future generations or hide the true state of the Alaska’s budget. In the height of last year’s frustrations, Stedman suggested that the Legislature may take the unusual step of just ignoring the governor’s requests.

In the Senate Finance Commitee’s first hearing of the session, he stopped short of taking quite such drastic action but said they plan on stripping out the governor’s influx of hundreds of millions of dollars in one-time federal money that he used to balance the budget. And only then, he said, will they start to consider how that money should be used.

“We will pull out of the non-reoccurring funds and boil it down to the base budget,” he said. “I think it’s very important that we have a base document to go to because we can, for instance, claim a budget is balanced when it’s not with reoccurring revenue. We want to concentrate on reoccurring revenue so if we can isolate and identify a structural deficit issue, the committee could go forward and work on trying to solve that.”

The rest of the hearing—which was a look at the state’s production forecast—was largely a trip down memory lane as legislators questioned the state about processing capacity on the North Slope (bringing back memories of all the “de-bottlenecking” talk of the 2012 session) and the Cook Inlet gas supply. The main budget takeaway here was the committee was not particularly thrilled to see the state banking on a forecast more optimistic than the producers’ historically over-optimistic forecast.

And then later in the day this happened:

Members of the Senate Finance Committee took a field trip down the hall to present a pair of giant novelty checks representing the Legislature’s efforts to transfer nearly $10 billion from the easily spendable portion of the Alaska Permanent Fund into the constitutionally protected corpus, a figure that grew by $4 billion thanks to Gov. Mike Dunleavy’s botched veto.

Why it matters: It’s a clear message the Legislature’s budget keepers are not keen on selling out the state’s future to help Dunleavy’s re-election chances.

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