Dunleavy budget scheme points to a future fire sale of Permanent Fund assets

Gov. Mike Dunleavy has a scheme for the state budget that leads directly to a fire sale of assets of the Alaska Permanent Fund.

Surprised? Don’t be. Angry? You should be.

Dunleavy, who won’t propose raising taxes, is looking at $1 billion deficits that would be covered in the next two years by spending most of the remaining contents of the Constitutional Budget Reserve on his watch.

After that, Dunleavy will be gone without having proposed any taxes or having tried to fix the state’s finances. And the Permanent Fund will be the only alternative to pay for deficits far into the future.

No one is going to confess to the Permanent Fund part of the master plan and everyone will deny that it would ever happen until it happens.

There are those in the Legislature who are not ready to follow Dunleavy into fiscal oblivion. And they may be able to stop or delay the scheme.

The trajectory chosen by Dunleavy needs to be understood by Alaskans.

It was not a confession in so many words, but Dunleavy’s latest budget director, Lacey Sanders, has revealed the first part of the scheme by saying Dunleavy no longer believes there should be a minimum balance of $2 billion in the CBR.

About $500 million is now enough, she says.

A year ago, former budget director Neil Steininger said a minimum balance of $2 billion was important to maintain. Steininger, who did a good job after the Donna Arduin disaster, was fired late last summer.

Maintaining a $2 billion balance in the CBR, as Steininger suggested, would mean that Dunleavy’s final year as governor could not include a $1 billion deficit to be paid for out of the CBR. Other experts have said that $3 billion is a more sensible CBR number to cover unexpected events.

Dunleavy’s desire to hide deficits by wiping out savings is the only way he can serve out the rest of his term and keep saying there is enough money to pay big dividends with no taxes. The next governor would inherit the mess.

Sanders is the first state budget director to say that the CBR would be OK if it dropped to $500 million. That would leave nothing to cover a drop in oil prices or emergencies, just the cash needed to keep state financial operations running.

She says it would be nice to keep it at $2 billion or more, but that can’t happen.

“It would be desirable to have funding in the account, but we also recognized that the state is in a position right now that we don’t have a fiscal plan to move forward that provides additional revenues or other measures to bring that balance higher,” she said.

She was right when she said, “we don’t have a fiscal plan to move forward,” but she didn’t say that it is Dunleavy’s job to propose a fiscal plan to move forward.

The Dunleavy budget scheme to spend down the CBR to $500 million prompted Sen. Bert Stedman, a budget expert, to use the word ridiculous at the Friday hearing. He was being polite.

Now that the Permanent Fund managers and investment professionals know about this plan to spend the CBR, they will recognize that a call for billions more in cash could come from a future Legislature. That could lead to a fire sale.

“Lighting the permanent fund on fire is just absolutely not acceptable. I hope that the administration would reconsider that position,” Stedman said.

So add this to the list of topics that should be included in the strategic plan for the Permanent Fund trustees.

They should be speaking out on the financial implications of the Dunleavy scheme, which threatens the future of the Permanent Fund.

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