Dunleavy's giant deficit puts state on trajectory to spend savings down to zero in two years

On December 12, 2024 Gov. Mike Dunleavy proposed a budget with a giant $1.5 billion to $2 billion deficit, which would have to be filled with half or more of the remaining balance in the Constitutional Budget Reserve.

Outside the Permanent Fund, the Constitutional Budget Reserve, now listed at $2.8 billion, is about all that is left. This is the unspoken emergency in our state government.

When Dunleavy first became governor he claimed he had a “permanent fiscal plan” and he promised he would never propose to spend “massive amounts of savings” to pay for the state budget.

“Those days are over. We can no longer spend what we don’t have, and we can’t pretend otherwise,” Dunleavy said in a press release on February 11, 2019.

“The foundation of my budget is based on the principle that expenditures cannot exceed revenues,” Dunleavy said, claiming his would always be an “honest budget.”

What Dunleavy has been offering for years now—big dividends, no major spending reductions, no taxes and a giant draw on savings—is thoroughly dishonest.

On Thursday, Dunleavy snarled his way through a press conference in which he failed to take any responsibility for planning to spend $2 billion more than the state is taking in—pushing the state toward a real crisis by the time his term ends.

He said he’s not interested in taxes. He is interested in spending state savings down to zero without doing anything to stop the decline. The only thing standing in his way is the Legislature.

Dunleavy claimed that “the fiscals have deteriorated since December” when he proposed his $1.5 billion deficit. He said he wants to talk to legislators this summer about what comes next.

“I would sit down with them here in June and going into the summer to craft a fiscal plan,” Dunleavy said Thursday.

We’ve seen this movie too many times before to take him seriously.

Here is what I wrote on May 15, 2023. Dunleavy was saying then exactly what he is saying now about the perilous plight of the “fiscals,” offering plenty of talk, but no action.

While our dependence on oil surpassed Seward’s Folly as a point of discussion decades ago, It’s been about three weeks since Gov. Mike Dunleavy discovered the “folly” of basing state government finances on oil prices.

“To simply ride oil in a do-or-die situation for the state of Alaska is folly. It’s probably not a good idea,” Dunleavy announced, contradicting the blithe assumptions and promises that marked his campaigns for governor in 2018 and 2022.

He said he was ready to introduce a new bill for a sales tax, confirming what he had told legislators privately 9 days earlier.

“They said Dunleavy was set to introduce yet-unseen legislation to levy a statewide sales tax,” the Anchorage Daily News reported on April 18, 2023.

On April 27, 2023 he said publicly, “We’re drafting, I think it’s gonna be complete today, maybe tomorrow, a bill on a broad, low sales tax.”

“I would start off with a low percentage sales tax, probably one percent,” he said. “And the reason I say that is, it’s really about stabilizing our fiscals, it’s not necessarily trying to get as much money to spend more on things. So it’s really the discussion we’re having, it’s how do we stabilize the fiscals?”

His staff later corrected that claim to say it was a 2 percent tax plan, but that number could always be reduced before the plan saw the light of day.

A sales tax is not a good idea. A small income tax, a reduction in dividends and an increase in oil taxes—including closing the $100 million Hilcorp loophole—are much better options, but Dunleavy’s sales tax talk was the first step in the 12-step fiscal program—admitting that our system is not manageable. A compromise with these obvious elements eludes us when the Legislature is divided and the governor acts as if he is an innocent bystander.

Dunleavy’s comments generated headlines about his alleged new attitudes about taxes and paying for government, but all we really have are new platitudes about what he insists on calling the “fiscals.”

The sales tax bill has yet to see the light of day. The only new bill introduced by the governor that might or might not generate a few fiscals is his plan to allow electronic pull tabs, introduced May 9, 2023.

The lack of fiscal followthrough from Dunleavy is nothing new. When it comes to taking political risks with specific plans that not everyone will like, he has chosen to remain on the sidelines ever since the 2019 budget disaster that almost ended his term.

The House and Senate are deadlocked on the size of the Permanent Fund dividend and other matters. The House has approved more than a half-billion in spending from savings, which is not sustainable.

The Senate approach is the only one that makes sense, unless the state approves new taxes to pay for higher spending. The Senate and House won’t approve taxes and the governor won’t lead the way on taxes or anything else. There are shouts and murmurs about a spending cap, but the unpopular details on what would be cut are unexamined.

“I never thought a fiscal plan was ever going to go anywhere, anyway — without the governor’s help and true buy-in,” Rep. Bryce Edgmon said.

During his April 27, 2023 press conference, Dunleavy hemmed and hawed at length about the “fiscals,’ which would be a good name for a garage band.

“There’s no doubt that you’ve probably heard discussions that we’ve been having discussions across the Legislature, across caucuses, etc. etc., on how we can, how we can get a handle on our fiscal situation so that we can stabilize our fiscals and our approach to fiscals going forward,” he proclaimed.

“As we know, Alaska is probably the only state that relies heavily, heavily, almost exclusively to some degree on commodities,” he said.

“Any way you look at it Alaska is a state that relies on commodities, commodity prices, we probably follow commodities more than any other state in the country.”

“Even in good times, a precarious way to deal with fiscals,” he revealed.

“We understand that we’re gonna have to bite the bullet to some degree to come up with a fiscal plan that is sustainable, that is stable and that will serve Alaska well for some time,” he said.

Dunleavy never introduced the sales tax he promised. He never prepared a fiscal plan. He says now he is not interested in taxes.

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