Alaska governor proposes cuts to education, Medicaid, ferry system

Alaska Gov. Mike Dunleavy proposed sweeping budget cuts Wednesday that he said are necessary to resolve an ongoing deficit. Critics called his plan reckless and said it would devastate key services such as education.

Dunleavy, a Republican, said sacrifices are needed to resolve a deficit that has been forecast for the coming fiscal year at $1.6 billion.

"This budget is going to impact all Alaskans," he told reporters.

Dunleavy is proposing deep cuts to public education, the university system, Medicaid and Alaska's ferry system. He also proposed changes in petroleum property tax collections that would benefit the state while affecting some boroughs and municipalities.

University of Alaska system President Jim Johnsen said the system faces a cut of more than $130 million, which could force layoffs of up to 1,300 people and the elimination of programs. As a point of reference, the system said it could close the University of Alaska Anchorage and still not meet that level of cut.

NEA-Alaska, a major teachers' union, said cuts of more than $300 million for K-12 schools and early education "would fundamentally alter the course of public education in Alaska."

Cutting state support for ferry system

Dunleavy's plan also would cut state support for the marine highway system, a major transportation artery in rural southeast Alaska, with hopes that another management option will be found.

The state also is eyeing changes to Medicaid, including lower reimbursement rates and restructuring. Dunleavy's budget office said state health commissioner Adam Crum was working with the federal government on a proposal.

Mike Barnhill, a policy director in the budget office, said there are no current plans to eliminate coverage for those on Medicaid.

"It's reducing provider rates and finding a new way of providing coverage at a reduced cost to the state," he said.

The budget release came 30 days into a scheduled 90-day session. Lawmakers will now vet the plan and come up with their own version.

Dipping into oil-wealth fund

Alaska has experienced years of multibillion dollar deficits, with lawmakers blowing through billions in reserves to help fill the gap.

Last year, however, with options dwindling and ongoing disagreements over continued budget cuts and taxes, the Legislature began dipping into earnings from the state's oil-wealth fund, the Alaska Permanent Fund, to help cover costs. That has created tension because earnings also are used to pay the annual dividend Alaskans receive from the fund.

Dunleavy has said spending should match revenue. He has resisted talk of any new taxes and called for a full dividend payout.

Under a law that seeks to limit how much can be withdrawn from permanent fund earnings, $2.9 billion will be available to be spent among government and dividends in the coming fiscal year. A full dividend payout alone would account for $1.9 billion of that.

Critics of that law have said it could be ignored. However, many legislators, particularly in the Senate, have bristled at the idea of treating fund earnings as an easy-access piggy bank and overspending from it.

Jay Parmley, executive director of the state Democratic party, called Dunleavy's proposals reckless. But Ryan McKee, grassroots director for Americans for Prosperity-Alaska, said Dunleavy has recognized the state's fiscal reality.

"It's simple, our government can't spend more than it has," McKee said.