Gov vetoes $210M; revenue forecast heads south

  • Gov. Mike Dunleavy makes line item vetoes to the 2021 fiscal year budget on April 6. In announcing the cuts at an April 7 press conference, Dunleavy said many of the reductions will be backfilled with federal emergency response funds to deal with the economic fallout of the coronavirus pandemic. (Photo/Austin McDaniel/Office of the Governor)

Gov. Mike Dunleavy made significant vetoes to the state budget for the second straight year before signing it, but he said many of the cuts will be backfilled with federal coronavirus aid the state is expected to receive.

In all, Dunleavy announced vetoes of $210 million in unrestricted general funds on April 7 for a final combined fiscal year 2021 operating and capital budget total of just more than $4.5 billion.

The roughly $440 million Dunleavy vetoed from the budget last year following an exceptionally contentious and prolonged budget process with the Legislature helped spur an ongoing effort to recall him from office.

He also continued to press the Legislature to reconvene as soon as possible to approve an additional Permanent Fund dividend payment that he says is needed to help Alaskans deal with the effects of the economic shutdowns ordered to limit the spread of the virus.

He noted that Congress approved direct stimulus checks of up to $1,200 per person as part of the $2.2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act legislation passed March 27.

“All across the world, leaders and economists are looking to mimic the PFD. Yet here in Alaska, our leaders are doing the opposite. I will continue to call on the Legislature to follow the law, utilize the statutory calculation for the Permanent Fund dividend and get money into the hands of laid off workers throughout Alaska,” Dunleavy said. “Call it a PFD, call it a COVID-19 emergency relief payment; it does not matter. We must act now to help our fellow Alaskans.”

The Legislature, which quickly passed the budget March 29 and recessed from the session, funded a single PFD payment of $1,000 per person. While the Senate originally approved $1,000 payments in spring and fall in light of the economic hardships being faced statewide, lawmakers ultimately decided to keep the $680 million needed for the additional payment in the Earnings Reserve Account of the Permanent Fund in light of the increasingly bleak fiscal picture the state as a whole is also facing.

Lawmakers who supported the single, $1,000 PFD have since said they did not want to make additional, ad hoc draws on the Permanent Fund that would violate the 5.25 percent of market value, or POMV, annual draw limit on the fund, particularly at a time when financial markets are extremely volatile and the state’s projections for future revenue are also getting worse.

The money will likely be needed in the future just to maintain some basic levels of state services, irrespective of PFDs, they stress.

As to the vetoes, Dunleavy said the CARES Act funding would cover a “majority” of the individual cuts he enacted. Alaska is set to receive at least $1.25 billion of federal aid to address general economic and health issues that arise from the virus and the governor has broad authority to accept and distribute that money.

“We looked over the CARES Act and had discussions with people in Washington (D.C.) so we believe we are going to be able to do what we say we’re going to do” with that money, Dunleavy said in a press briefing.

House Speaker Bryce Edgmon said in a formal statement that lawmakers need to hear more details about the discussions the administration had with federal officials about uses for the CARES Act aid and noted the vetoed money the administration wants to replace largely comes from things the Dunleavy has previously battled over with legislative leaders.

“From our initial understanding, federal funds can only be used for expenditures incurred due to COVID-19, not expenditures unrelated to the COVID-19 response,” Edgmon said.

“There is no guarantee the federal government will pick up the tab. This approach is incredibly troubling to me.”

According to a list provided by the Office of Management and Budget, here are the vetoes the administration expects to pay for with the federal aid:$31.2 million in community assistance payments

• $66.7 million in combined K-12 education funding

• $100 million in school bond debt reimbursement payments to local governments

• A $2.7 million COVID-19 response grant to the Municipality of Anchorage

• A $5 million homeless grant to the Alaska Housing Finance Corp.

• $2.3 million in non-mandatory municipal debt reimbursement payments

Dunleavy said the $100 million veto to school bond debt reimbursement, for example, will be eligible for repayment with CARES Act funds because local governments are collecting less in tax revenue as a result of the economic restrictions the pandemic pushed officials to order. However, the money he vetoed was the state’s share of those payments.

Dunleavy also vetoed $31 million from a supplemental budget request the Department of Health and Social Services made to Medicaid funding shortfalls for the rest of the 2020 fiscal year as well as $15 million from the Alaska Marine Highway System allocation and a $1 billion transfer from the Earnings Reserve to the corpus of the Permanent Fund.

DHSS Commissioner Adam Crum said the vetoed supplemental Medicaid funding will be made up through an increase to the federal match for Medicaid passed by Congress in response to the pandemic.

Additionally, Dunleavy vetoed $12.5 million from the University of Alaska budget, money the Legislature approved that funded the system beyond the $75 million in cuts over three years the governor and regents agreed to last year.

Revenue forecast goes south

In the latest state revenue forecast released April 6, Department of Revenue officials project the collapse in oil prices and lost tax revenue from other sources will result in forgone revenue totaling nearly $530 million for the rest of the 2020 fiscal year, which ends June 30, and $815 million in 2021 versus the revenue forecast released last December.

The final unrestricted revenue tally is now pegged at $4.5 billion for 2020 and $4.3 billion in 2021.

Legislative Finance Director Pat Pitney has said the state could drain the Constitutional Budget Reserve and be forced to make ad hoc draws on the Permanent Fund by fiscal 2022 based on oil price and financial market projections.

Oil prices have crashed since late February in part due to a sharp pullback in oil demand stemming from the travel and work restrictions put in place worldwide, but also because of a price war between Saudis and Russian officials that oil market analysts hope will be resolved soon.

Revenue officials last fall forecasted an average Alaska North Slope crude price of $63 per barrel and the guess was largely looking correct until the COVID-19-induced economic upheaval. Now they are predicting an average price of $51 per barrel for the year, with prices averaging just $37 per barrel through 2021 and gradually climbing to $50 per barrel by 2027.

Elwood Brehmer can be reached at [email protected].

Updated: 
04/07/2020 - 8:03pm