Alaska finances could be in 'a death spiral' if savings aren't spent sustainably

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JUNEAU, Alaska (KTUU) - Alaska’s finances could one day be in a “death spiral” if legislators draw unsustainably from the state’s savings accounts, said David Teal, the director of the nonpartisan Legislative Finance Division, to a Senate Finance Committee hearing Wednesday morning.

Teal gave a stark assessment of the state’s finances and revenue sources, saying that larger deficits would lead to lower earnings and lower dividends.

Donna Arduin, the governor’s newly appointed director of the Office of Management and Budget, also addressed the committee to talk about how she was formulating the governor’s budget, set to be released Feb. 13.

Arduin called for state departments to provide a list of core services and to prioritize their functions as she tries to balance a $1.6 billion deficit. “Rather than asking agencies to do more with less, we’re asking them to do less with less, in many instances,” Arduin said.

"I am very supportive of her decision to have the departments prioritize their functions,” said Sitka Republican Sen. Bert Stedman, chair of the Senate Finance Committee. “That’s something we’ve asked them to do for years. I am looking forward to her sharing that information with the Legislature for the budgeting process."

Gov. Dunleavy spoke about the need to deliver an “honest budget” at his first State of the State address on Tuesday and that “our children and grandchildren deserve better.”

Stedman echoed why a transparent budget would be important, so the numbers, good or bad, could be debated in the Senate Finance Committee and lawmakers could “pull the bandaid, before the cash runs out.”

After Arduin, Teal addressed the committee saying that legislators would need to consider the consequences of paying supersized dividends to the state’s finances. “Every dollar paid as dividends is a dollar that doesn’t end up in the general fund as revenue,” Teal warned.

Teal said that when speaking to university students, they couldn’t believe that 37 percent of state revenue was spent on Permanent Fund Dividends.

At the State of the State address, Dunleavy said expenditures would need to equal revenue. Sen. Donny Olson, D-Golovin, who sits on the Senate Finance Committee, feared the result that a stripped down budget would have to rural Alaska.

Other Senate Democrats expressed skepticism about how spending could be reduced so dramatically after years of deep cuts.

“You could cut the entire education budget and that would not solve it, you could fire every employee in the state and that would not solve it,” said Sen. Bill Wielechowski, D-Anchorage, a member of the Senate Finance Committee. “I think it’s going to be a shock to Alaskans when the budget is released.”