Dunleavy's budget banks on wishful thinking
Trump, take the wheel.
Happy Friday, Alaska!
In this edition: It’s starting to feel a lot like almost session time! The governor rolled out his budget proposal this week, calling for the big dividend he’s never been able to deliver and not-my-problem-ing the resulting $1.5 billion deficit. A guy who’d rather be taking meetings with U.S. Senators to lobby for his confirmation in the Trump administration than rolling out a budget legislators won’t take seriously, Dunleavy didn’t have much beyond a concept of a concept of a plan for how to actually address the state’s structural deficit. Insisting that proactive measures aren’t needed, Dunleavy insisted that Alaska needs only to bank on Trump clearing the way for drilling, mining and logging. Ah, how I’ve missed this stuff.
Current mood: 💸
Dunleavy's budget banks on wishful thinking
On Thursday, two weeks removed from his declaration that he would be sticking out the remaining two years of his term after getting passed over for a spot in the Trump administration, Gov. Mike Dunleavy rolled out his budget with the usual undeliverable promises and not-my-problem approach to the long-term health of Alaska. You can dive into the nitty-gritty of the budget numbers here, but the big takeaway is the governor doesn’t seem particularly interested in doing the job.
There are some knobs turned here and there on various departments, but the elephant in the room he’s once again introduced a budget containing a multi-billion dollar line to pay out a full dividend according to a statute that hasn’t been followed for nearly a decade. At his news conference, the governor insisted it was important to follow the law — which, by the way, the Alaska Supreme Court says doesn’t need to be followed — and was later called out for ignoring another budgeting law.
Having abandoned his cuts-first approach to budgeting, Dunleavy offered no plan or even a concept of a plan for balancing the budget.
Instead, the combination of a largely status quo budget lacking meaningful cuts and a big PFD leaves the state with a roughly $1.5 billion budget gap and no plan beyond drawing down the $2.5 billion Constitutional Budget Reserve (something I can already tell you won’t happen because it’s so obviously unsustainable). His own budget office’s projections illustrate the financial folly of following such a plan in the long term, predicting unfillable billion-dollar deficits that will put the state in the hole by $12 billion over a decade.
As economists, legislators and budgeters have warned for years, Alaska has a structural deficit — its spending as outlined in law doesn’t match its income — that needs to be resolved if we want to follow the laws outlining spending (again, most of that spending is technically all optional because the constitution’s prohibition on dedicated funding bars one generation from binding another into spending). In broad terms, the options are to change the PFD law, increase revenue or cut other services.
But Dunleavy doesn’t seem interested in having a meaningful role in those decisions.
“That’s a discussion the legislators should have,” he said when asked about the massive deficit in his budget during a rollout news conference on Thursday.
And for all of his insistence about following the law on the PFD, a particularly interesting moment came when Neil Steininger — the governor’s former budget director who quietly left ahead of the 2024 session and is now freelancing and serving on the Juneau Assembly — pointed out that the latest budget doesn’t even try to answer long-term budget questions as is also required by law.
“State statute requires that you have the broad strokes within your 10-year plan to avoid the very picture that your 10-year plan shows,” Steininger said. “To balance the collection of revenues and the expenditure of revenues. Your 10-year plan this year and your 10-year plan last year completely omit any discussion on solutions.”
Dunleavy fell back on his hope-and-a-wish approach, insisting that Alaskans don’t need a plan beyond Trump opening up the state to more drilling, mining, logging and carbon sequestration. (It’s also worthwhile to point out that the ANWR lease sales fell apart because the Trump administration’s sloppy, rushed work exposed it to legal troubles.) Resource extraction industries, Dunleavy insisted, are what’s best for Alaska and especially good for those living in rural communities. He warned that more proactive efforts to balance the budget — raising new revenue through taxes or reductions to the dividend — will spur an exodus of Alaskans.
“I believe that the resource base of Alaska is the solution to the future,” the governor said. “I believe an income tax on the people of Alaska, a sales tax on the people of Alaska, taking what’s left of the dividend from the people of Alaska. If that’s going to happen, I would suggest that we all invest in U-haul.”
But as we know all too well, Alaskans are already moving away.
The state has experienced 11 years of net outmigration — kicked off by the collapse in oil prices and ensuing cuts to state services. When combined with an aging population, the state’s demographer issued a new report this year predicting the state’s population will stop growing altogether and will decline nearly 2% by 2050.
Even U-Haul’s own “U-Haul Growth Index” — a real-deal annual index of how many people are moving in and out of a state with U-Haul — paints a bleak picture. In 2022, Alaska ranked 41st, with 51.4% of all customers leaving the state. In 2023, that improved somewhat to 50.7% of customers leaving, ranking Alaska 34th.
To combat those trends, several legislators in the incoming, primarily Democratic bipartisan coalitions in the House and Senate argue that investments in child care, education, housing and workforce development are key to reversing those trends. The argument is that Alaska should invest more in improving the general quality of life to attract and retain people, even if that means growing some areas of the budget. Some have suggested increasing oil and gas taxes or implementing sales or income taxes to raise revenue (support for those items varies). Others have pointed out that the state can avoid taxes and invest in services by reducing dividends — leaving them somewhere around $1,000 rather than the roughly $3,800 payout suggested by the governor (it was about $1,700 this year).
This tug-of-war between the dividend and state services has become particularly evident in recent years, especially with the growing push to increase the state’s per-student funding formula. It doesn’t need to be that way, but that’s the corner legislators have largely been painted into by a governor who may not be particularly engaged in the legislative process but is not shy about lording the veto pen.
It’s also worth noting that the Dunleavy administration teased a sales tax and a special session on the state’s fiscal plan during 2023 (Steininger’s final year with the Dunleavy administration) before abandoning it altogether.
In the big picture, it’s not the first time Dunleavy has ducked responsibility for the state’s challenging financial situation, and legislators have come to put very little faith in his budget proposals. Where legislators may have once at least gone through the motions to entertain a governor’s proposal, legislators have been more likely to openly dismiss proposals like the large PFD as unserious and misleading.
That will likely be the case this year, too.
Stay tuned.
Weekend watching
I’m just about the least musically gifted person out there, but I sure do love some video game music theory.
Stay warm out there!