Governor says federal aid will cover a 'majority' of big budget vetoes

Gov. Mike Dunleavy has vetoed roughly $261 million in state funds from the budget for the next fiscal year but he says federal funding will be used to cover many of those cuts.

During an availability with the media Tuesday afternoon, the governor announced that he had signed the budget on Monday. There are big cuts to major spending items, including:

The governor said his administration would use part of the roughly $1.25 billion allocated to Alaska

to replace funding for some of those cuts.

“The majority of the larger items we will, we will replace with COVID money,” Dunleavy said before specifically mentioning compensating for cuts to school funding and school bond debt reimbursement. He then said that some of the smaller reductions would not be covered by federal coronavirus funding.

The governor did not detail which of his 108 vetoes would be left in place. According to budget documents, the cuts to public broadcasting and the ferries are expected to stand.

Dunleavy also announced that he had vetoed a roughly $1 billion transfer to the constitutionally protected part of the Permanent Fund. The idea, according to budget documents, is to keep more cash on hand during the COVID-19 pandemic.

Alaskans should not expect the $1.25 billion from the feds to be paid out in cash payments in the form of a second dividend. Instead, the governor said the Legislature should appropriate more funds for a larger divided after it approved

to be paid in October.

Dunleavy was also asked how he could use federal funding to cover reduced state operating expenses. “Once again, that’s our interpretation when we look at the bill that has passed that we can do that,” he said.

Using the example of school bond debt reimbursement, the governor said that municipalities would likely see their tax bases shrink due to the economic impacts of COVID-19, allowing for that federal funding to be spent in that way.

Some in the Legislature did not agree with the governor’s interpretation of how the federal COVID-19 package can be spent.

“From our initial understanding, federal funds can only be used for expenditures incurred due to COVID-19, not expenditures unrelated to the COVID-19 response,” House Speaker Bryce Edgmon, I-Dillingham, said through a prepared statement. “The governor’s vetoes gamble with vital programs like Medicaid, community assistance, school bond debt reimbursement, K-12 education, homeless grants, the Alaska Marine Highway System, public broadcasting, the university, and more. There is no guarantee that the federal government will pick up the tab. This approach is incredibly troubling to me.”

Other lawmakers supported the governor's approach of using federal funds to fill state budget holes.

“I think that was an appropriate way to handle this, it still doesn’t fix the long-term challenges,” said House Minority Leader Lance Pruitt, R-Anchorage, explaining the governor’s decision allows for more revenue in hand to potentially help out Alaskans in the future.

For the long-term, the State of Alaska’s fiscal challenges are dire, largely due to oil prices tanking in the past month. The Department of Revenue projects that hundreds of millions of dollars will be wiped from the state’s

Sen. Natasha von Imhof, R-Anchorage, said lawmakers need to think of immediate needs facing Alaskans and also ensure people have a job to go back to once the economy fires up again. “It’s critical to stretch our dollars as long as possible because I do look at the medium and long term,” she said.