Dunleavy's re-election hopes ride on fiscal plan worthy of great and powerful Oz
Gov. Mike Dunleavy’s latest fiscal fantasy, which he hopes to be the basis of his 2022 re-election campaign, depends almost entirely on hidden assumptions and three external forces beyond the control of the governor and the Legislature—higher oil prices, higher oil production and higher investment returns of the Alaska Permanent Fund.
Dunleavy is trying to replay the scenario that allowed him to win the 2018 election—promising no broad-based taxes, larger Permanent Fund dividends, increased oil production and cuts to government services that no one will notice.
Numerous dubious assumptions that Dunleavy and his budget experts have concealed or downplayed in their Wizard of Oz-like fiscal plan deserve examination by legislators and Alaska news organizations. What’s missing is the realization that this is same recycled nonsense from 2018.
Here is the best analysis I’ve seen so far, by blogger Matt Buxton of The Midnight Sun.
Behind the curtain lies a package of Dunleavy assumptions that show the new promises for a pain-free future of no taxes, big dividends and no real cuts in services are as empty as those he made during the 2018 campaign—when he was unable to name a single real program he wanted to cut from the budget.
In 2018, Dunleavy said the state could cut 2,000 vacant positions, make Medicaid more efficient, consolidate heath insurance and produce $400 million or $500 million in savings. An increase in oil production would take care of everything and the state would be paying $1 billion more in Permanent Fund dividends.
After the election, he abandoned his campaign spiel, claiming it was not his fault because “we were told” that oil would be $75 a barrel. He later abandoned the Donna Arduin plan to gut state services in desperation, the move that kept him from getting recalled.
Here are some hidden highlights of the new and improved Dunleavy fiscal fantasy. This is my interpretation of the Legislative Finance Division review of the Dunleavy plan:
Dunleavy assumes that the state will permanently reduce the amount paid to local governments for school bond debt reimbursement by half from the amount set in the law, “saving” money by forcing local governments to pay more. He has not proposed to change the law.
Dunleavy assumes that annual state spending levels will be cut over the next three years by about $266 million. He has not identified those cuts.
Dunleavy assumes that state agency operations will grow by 1.5 percent a year after the $266 million cut is in place. This is below the assumption that inflation will be 2 percent a year, meaning that the state budget will decline in real terms every year. He has not identified those cuts.
Dunleavy assumes that there will be no supplemental budgets in future years. There are always supplemental budgets to cover unexpected cost increases.
Dunleavy assumes that total spending starting next month until July 1, 2030 will be $5 billion less than it would be under current state policies and programs. He has not identified the $5 billion in reductions.
Dunleavy assumes that starting in 2024, there will be $300 million a year in new revenues. Or $300 million a year in reduced expenses. He has not identified new revenues or reduced expenses.
The governor’s plan will work if a half-billion in unidentified budget reductions are made and if oil prices, oil production and Permanent Fund earnings are as high as Dunleavy says they will be.
The Dunleavy plan for a constitutional amendment on the Permanent Fund would limit the state’s options to fill budget gaps in the future and force higher taxes or immediate large cuts in services. Dunleavy will keep quiet about that for as long as he can.
The House Judiciary Committee holds its next hearing on the governor’s plan Wednesday at 1 p.m.
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