In new budget, Alaska Gov. Dunleavy retreats from cuts but still favors big PFDs

Alaska Gov. Mike Dunleavy speaks at a September news conference in his Anchorage offices. (Photo by Nat Herz / Alaska Public Media)

Alaska Gov. Mike Dunleavy released a new state spending plan Wednesday that retreats from his past aggressive budget-cutting positions while still pushing for larger Permanent Fund dividends.

Dunleavy’s proposal would hold spending on education, health care and ferries essentially flat. And it budgets about $2 billion for dividends, enough for about $3,000 for each Alaskan — up from this year’s $1,606 payment.

In his first year in office, state lawmakers rejected many of the pieces of Dunleavy’s plan, which would have paid record-sized dividends while still eliminating Alaska’s deficit, largely through deep cuts to schools, health care, ferries and the state university system.

In Wednesday’s proposal, Dunleavy is wants to keep the record-sized dividends while largely abandoning his push for reductions beyond those made earlier this year.

Without substantial cuts, Dunleavy’s new plan calls for the state to spend $1.5 billion more than it brings in. He wants to cover that deficit by spending roughly three-fourths of the cash in Alaska’s primary savings account, the Constitutional Budget Reserve, which is projected to hold about $2 billion at the start of the upcoming fiscal year.

Dunleavy and his aides, at a news conference in Juneau, suggested that the deficit could be reduced during the budget process, as the governor’s proposal moves through the Legislature. After Dunleavy left the news conference, one of his top advisors, Brett Huber, even left the door open for taxes as a means of closing the gap, saying that “everything is on the table in that discussion.”

The budget, Dunleavy said, “is a springboard for discussions with the Legislature, with the people of Alaska.”

“Because we have to work together to form a budget that’s going to make sense for all Alaskans,” he said.

[Read more: Anxious about Dunleavy’s new budget? Alaska lawmakers will likely temper it, maybe by a lot]

Dunleavy made dividends a focus of his gubernatorial campaign last year, saying that the payments should be larger ⁠— set by a decades-old state law that links them to the investment returns of the $65 billion Permanent Fund. Dunleavy’s predecessor, independent Bill Walker, had favored smaller payments, to leave more of the Permanent Fund’s earnings available for spending on government services.

Dunleavy’s first budget proposal called for dividends of $3,000, leaving a substantial deficit that the governor wanted to close largely through the deep spending cuts.

Critics noted that Dunleavy did not advertise sharp cuts to those programs over the course of his gubernatorial campaign last year, leaving some Alaskans surprised and frustrated when he proposed them.

[Read more: Candidate Dunleavy said he had no plans to cut ferries, schools, university. Then Gov. Dunleavy proposed deep reductions.]

After months of debate in the Legislature, state lawmakers cut Dunleavy’s proposed dividend to $1,600 and rejected many of his proposed spending cuts. Dunleavy then vetoed hundreds of millions of dollars from the budget; legislators, in a special session, then restored money for some of the vetoed programs.

Dunleavy subsequently vetoed many, though not all, of the same line-items a second time.

This is a breaking news story. Check back for updates.

Related: Read our complete coverage of Dunleavy’s budget last year

Related: Read all coverage of the Dunleavy recall effort