One-time Biden bonanza subsidizes Dunleavy's alleged 'surplus'

Gov. Mike Dunleay’s proposed election-year budget and accompanying PR campaign make much of the claim that there would be no deficit, but a surplus.

This is a serious distortion that does not take one-time federal money into account.

The state and local governments are spending about half of $1 billion in direct disaster aid this fiscal year, while Dunleavy proposes using nearly all the rest in FY 23. This warps the state financial situation enough to make the surplus claim a lie.

This direct state money is a relatively small part of the $4.7 billion coming to Alaska in a wide variety of ways.

In the current fiscal year, the state is spending $250 million of one-time federal disaster funds to underwrite state services as “revenue replacement.” There is no surplus without the Biden bonanza.

For the fiscal year that begins next July 1, the state would spend $375 million of one-time federal disaster funds to prop up its budget. Again, no surplus without the bonanza.

The governor wants to run as a champion of the Permanent Fund Dividend and public safety and fighting the federal government. He says he wants to spend $10 million more to fight Biden, but not the bonanza.

Dunleavy claims in a campaign fund-raising plea he has “invested in reining in big-government spending by eliminating the state’s deficit.”

And the budget “uses conservative principles to make government work better for the people of Alaska, holding the line with no new taxes and streamlining the permitting process to reduce red tape.”

What Dunleay’s not saying is that his entire plan rests not just on more oil money and higher returns from the Permanent Fund, but on the immense flow of money from Congress and the Biden administration that will soon end. When the extra federal money stops, the Dunleavy plan goes over the fiscal cliff.

The deficit has not been eliminated. It has been disguised by federal largesse.

Dunleavy is proposing that the state spend $274 million on public safety in the fiscal year that begins next July, up from $237 million this fiscal year.

Dunleavy’s proposed $37 million increase would allow the public safety department to hire 93 new permanent state employees.

The proposed budget for public safety includes $90 million in “revenue replacement” from the federal government disaster relief program. About one-third of the overall public safety budget for the next fiscal year would be paid for with one-time federal money that is a “replacement” for traditional state income.

After that?

The official Dunleavy plan is to return to deficit spending on July 1, 2024 for public safety and all other state programs.

To keep the 93 new public safety employees on the payroll in 2024, the state will have to dip into savings.

Even an official Dunleavy budget document says that the deficit in the year starting July 1, 2024 will be $275 million.

But the Dunleavy 10-year budget document is not based on realistic assumptions. It is a campaign fantasy.

It includes unidentified budget cuts, no adjustment for inflation and freezing the construction budget at half of what it is this year from now to eternity. Or at least until 2032.

Dunleavy says the operating budget in FY 24 will be $65 million below what it will be in 2023. He also says that total general fund appropriations in 2031 will be about $15 million lower than this year.

Dividends will stay in the $2,700 to $3,300 range and there will be no taxes.

This is not based on reality. It’s a random collection of imaginary numbers for the Dunleavy reelection campaign.

Use realistic assumptions about inflation, the construction budget and the demand for state services, the $275 million deficit could easily push $600 million. This would apply to the budget that would have to be created after the next election.

If Dunleavy wins the 2022 election, expect a replay of the 2019 budget debacle to follow.

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The new Dunleavy 10-year plan features unrealistic assumptions about the future. For instance, he would cut the construction budget from $335.9 million this year to $154.7 million next fiscal year, allowing for no increase for the next decade. The plan also assumes that oil prices will not fall, that retirement costs will decrease, that the Permanent Fund will have strong earnings and that the operating budget will drop by $65 million to a lower starting point on July 1, 2024 and show little change by 2032.