Spending rises, but so does savings, in new Alaska state budget signed by Dunleavy

The $14.4 billion document is the sixth-largest in state history

By: - June 28, 2022 6:47 pm
Gov. Mike Dunleavy speaks at a June 28 press conference in Anchorage on this Fiscal 2023 budget to go into effect on July 1. (Photo by Yereth Rosen/Alaska Beacon)

Gov. Mike Dunleavy speaks at a June 28 press conference in Anchorage on this Fiscal 2023 budget to go into effect on July 1. (Photo by Yereth Rosen/Alaska Beacon)

Alaska Gov. Mike Dunleavy has signed a $14.4 billion state budget, the sixth-largest in state history, after vetoing about $400 million from a proposal passed by the Alaska Legislature this spring.

With Alaska expecting a multibillion-dollar surge in oil revenue due to high prices caused by the Russian invasion of Ukraine, spending is up by $2.7 billion when compared to the budget passed by the governor and lawmakers last year.

That increase is less than the rise in revenue, and the state is poised to end a decade-long streak of years in which it needed to spend from savings in order to balance the budget.

“In the end, we think this is a great budget for the state of Alaska,” Dunleavy said.

Julie Kitka, president of the Alaska Federation of Natives, speaks at Gov. Dunleavy's June 28 budget press conference. Behind her is Anne Sears, the state's investigator for missing and murdered Indigenous people. (Photo by Yereth Rosen/Alaska Beacon)
Julie Kitka, president of the Alaska Federation of Natives, speaks at Gov. Dunleavy’s June 28 budget press conference. Behind her is Anne Sears, the state’s investigator for missing and murdered Indigenous people. (Photo by Yereth Rosen/Alaska Beacon)

Asked whether the size of the budget makes the state vulnerable if oil prices fall, Dunleavy said most of the increases are one-time payments rather than a rise in annual expenses.

Because the budget includes about $3.6 billion in mechanisms to save money for future years, “we believe that we would be able to fund another year of government, even if the price of oil went down into the $30s (per barrel) or high $20s,” Dunleavy said.

Combined state-dollars spending on the operating budget is $4.8 billion, up from $4.6 billion in Dunleavy’s first budget, and former Gov. Bill Walker — now an independent candidate running against Dunleavy — issued a critical statement noting that the budget for the office of the governor has risen 28% during that period. The governor’s budget accounts for less than $40 million.

Walker and eight others are running against Dunleavy in this year’s election for governor. Dunleavy is seeking re-election.

Though some state legislators were disappointed by individual vetoes, Speaker of the House Louise Stutes, R-Kodiak, and Senate Minority Leader Tom Begich, D-Anchorage, each were positive about the outcome.

“Alaska can move forward with this budget,” Begich said.

Neil Steininger, director of the Office of Management and Budget, speaks at a June 28 news conference about the Fiscal 2023 budget, to go into effect on July 1. Behind him are Ralph Seekins, a University of Alaska regent, and Anchorage Mayor Dave Bronson. (By Yereth Rosen/Alaska Beacon)
Neil Steininger, director of the Office of Management and Budget, speaks at a June 28 news conference about the Fiscal 2023 budget, to go into effect on July 1. Behind him are Ralph Seekins, a University of Alaska regent, and Anchorage Mayor Dave Bronson. (By Yereth Rosen/Alaska Beacon)

“At a preliminary review, the FY23 budget has something in it for every Alaskan. More importantly, this was done with no new taxes and a significant amount of funds put into our savings accounts,” said members of the House’s Republican minority in a joint statement.

Among the budget’s biggest line items are a combined $2.1 billion to pay a Permanent Fund dividend and energy relief check whose combined value is estimated to be about $3,200 per recipient.

The precise amount of the payout — which will be determined by the number of recipients — has yet to be determined, and the governor said he expects to announce a payout date “probably in the next week.”

The dividend has traditionally been paid in October, but Dunleavy ordered the 2020 dividend to be paid early, and Democratic members of the Alaska Senate issued a statement asking Dunleavy to do so again.

“We have the ability to provide needed relief now, and Alaskans deserve it,” said Sen. Scott Kawasaki, D-Fairbanks, citing high fuel costs.

Another major line item inserted by members of the Alaska House and kept by Dunleavy is a second year of funding for K-12 schools, effectively paying for two years’ worth of education funding in one. 

Intended as a way to reduce costs next year, it’s a $1.2 billion item that could be reduced if oil prices fall. If oil prices average at least $103.25 per barrel in the next fiscal year, the second year of funding is fully paid.

If prices fall below that amount, the amount of forward funding is reduced. At $89 per barrel, the budget would remain fully balanced, but there would be no forward funding. Below that amount, the state would have to use savings to close the gap.

The budget also contains several hundred million dollars intended to pay tax credits owed to oil and gas drillers and their financiers.

The money is the amount necessary to settle a debt accrued under a now-defunct incentive program. Because the state budget contains annual payments on that debt, settling it should free more money in the future, Dunleavy said.

The governor acted differently on the state’s public-employee pension liability, vetoing an $89.3 million appropriation added by the Legislature atop the amount requested by the managers of the pension fund. The state has a multibillion-dollar pension liability that must be paid in the future.

That was the largest single veto aside from a procedural move that shifts $360 million in savings from the Statutory Budget Reserve to the Constitutional Budget Reserve, which has a higher threshold for spending. 

The governor also vetoed $85 million in funding intended for maintenance at schools and state facilities, cut funding for the Alaska Long Trail, cut support for the Food Bank of Alaska, Alaska Seafood Marketing Institute and the Alaska Library Network, and vetoed some recruitment efforts at the Alaska Department of Law.

In the case of ASMI, a state official said that organization had funds left over from last year and did not need additional support allocated by the Legislature. The Department of Law funding request may still be addressed in separate legislation. 

“We didn’t need the extra appropriations that were put in there,” Dunleavy said.

Sen. Bill Wielechowski, D-Anchorage, said he was disappointed by a $4 million veto to the child care program office in the state Department of Health.

“Here he is coming out and saying he wants to change the constitution to ban abortions and he’s cutting child care assistance. If you’re gonna ban abortions, you have an obligation to take care of kids,” Wielechowski said.

Dunleavy also vetoed the Legislature’s effort to save money in the Alaska Permanent Fund and the easily spent Statutory Budget Reserve. Instead, the primary vehicle for savings is the Constitutional Budget Reserve. 

Spending from that requires three-quarters of the House and three-quarters of the Senate, and the veto has caused some concern among legislators who watched the House drive the state to a brink of a shutdown in 2021 as it struggled to reach that three-quarters mark during low oil prices.

“If oil prices do tank, then we could be right back, having to squabble and fight to get three-quarters,” said Rep. Bryce Edgmon, I-Dillingham.

Overall, Dunleavy’s vetoes were fewer and smaller than in his first budget, which came as he attempted to boost the size of the Permanent Fund dividend amid slumping oil prices. Uninterested in new taxes, Dunleavy vetoed billions from the budget but ultimately reversed many of his actions after facing opposition from the Alaska Legislature and Alaskans who mounted a recall campaign against him.

This year, though he continued to veto funding for public radio, he did not veto money for school bond debt reimbursement or the University of Alaska, items he had targeted in prior years.

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James Brooks
James Brooks

James Brooks is a longtime Alaska reporter, having previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. A graduate of Virginia Tech, he is married to Caitlyn Ellis, owns a house in Juneau and has a small sled dog named Barley. He can be contacted at [email protected]

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