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Sweeping budget cuts revealed: Deep cuts proposed to public education, health care, AMHS

By The Associated Press
and Daily News Staff

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's 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 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 "would fundamentally alter the course of public education in Alaska."

According to information from the office of Rep. Dan Ortiz, I-Ketchikan, the cut to the state Foundation Formula for K-12 education would cost the Ketchikan School District about $6.25 million, “the equivalent of a loss of 70 of our current 178 district-wide teaching staff.”

Other cuts to the Department of Education and Early Development would result in the “complete elimination of Pre-K Grants, the Council of the Arts, WWAMI, and some internet services, such as OWL and Live Homework Help,” according to Ortiz’ office.

Dunleavy's plan also would cut state support for the Alaska Marine Highway System, a major transportation artery that‘s headquartered in Ketchikan and serves Southeast Alaska, Prince William Sound, Kodiak and ports along the Aleutian chain, with hopes that another management option will be found.

Dunleavy proposes cutting $96.1 million — 68.4 percent — from the AMHS budget, according to the budget documents. That includes a $66.7 million cut to vessel operations.

According to KTOO,  Donna Arduin, Dunleavy’s director of the Office of Management and Budget, on Wednesday told media representatives that the administration has proposals to look at privatizing AMHS, and that it’s in the process of hiring a consultant to “talk about all of the options that are available.”

The state also is eyeing changes to Medicaid, including lower reimbursement rates and restructuring. Details were limited though officials with 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.

Becky Hultberg, president and CEO of the Alaska State Hospital and Nursing Home Association, said Medicaid is a major lynch pin for the state's health care system. She said several small hospitals last year had less than 10 days cash available.

"You can't cut rates and services and expect that they're going to be able to survive," Hultberg said. If those services are lost, there may be people without access to emergency care or specialists, she said.

She said the lack of detail on the state's plans for Medicaid is frustrating.

According to Ortiz’ office, other impacts of Dunleavy’s proposal include elimination of the Senior Benefits Program and the removal of state subsidies for the Alaska Pioneer Homes. It also would cut about $1.6 million from commercial fisheries management.

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.

Alaska has experienced years of multi-billion 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, since 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.

Sen. Bert. Stedman, R-Sitka, will be the Legislature’s key figure as the budget process moves forward. Stedman, whose Senate District R includes Ketchikan, is the Senate Finance Committee co-chaiman responsible for developing the Senate version of the state operating budget.

In a prepared statement released Wednesday morning after Dunleavy’s proposed budget was announced, Stedman said the Senate Republican majority caucus is “committed to protecting the Permanent Fund and dividends for future generations of Alaskans, passing a sustainable budget in both the short and long-term, increasing jobs and growing the economy, and keeping Alaskans and their families safe.

“Now that we have the governor’s proposal, we can get to work taking it apart and understanding the impacts,” Stedman said.

The other Senate Finance Committee co-chair, Republican Sen. Natasha von Imhof, said the budget was only “part of the picture,” and that the committee will track and analyse how the budget and other proposed appropriations and constitutional changes interact to affect the health of Alaska’s economy.

 “While it is too early to understand all the impacts today, we’re committed to taking the time to fully analyze and thoroughly vet these proposals,” Von Imhof said in the prepared statement.

For Ortiz, some impacts from Dunleavy’s proposal are clear already.

“From the proposed cuts to education, our marine highway system, and those impacting our seniors, enacting Gov. Dunleavy’s budget will succeed in making Southeast Alaska a much less desirable place to live,” Ortiz said in a prepared statement. “On a statewide basis, enacting this budget will result in a 15,000 to 17,000 net job loss, plunging the state into a very deep recession.”

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.

OMB Director Arduin is expected to provide a comprehensive overview of Dunleavy’s proposed budget to the Senate Finance Committee on Thursday, followed in subsequent days with presentations by Arduin and department commissioners and administration services directors regarding proposed departmental budgets, according to a committee announcement.