Is it possible to balance government budgets anymore?
In D.C., the answer seems to be “no.” See the Congressional Budget Office’s August estimate that federal deficits are growing faster than previously thought. Yet if federal lawmakers, or even President Trump, want to change that, they would do well to look to the budgetary leadership on display in my home state of Alaska.
The fiscal credit in the Last Frontier goes to Republican Gov. Mike Dunleavy, who has made balancing the budget one of his top priorities. He has faced two main opponents in this fight — the same opponents that typically decry budget cuts at the federal level. The first is the legislature, which is dominated by Republicans who like wasteful spending and make alliances with tax-and-spend Democrats. The second is the media, which decries all budget cuts as draconian and even deadly.
What lawmakers and liberal reporters generally ignore is that Alaska has faced constant budget deficits for the past five years.
Unique among states, Alaska gets nearly all of its general revenue from excise taxes on oil. In 2013, falling oil prices, driven by the fracking boom in the lower 48 states, led to a budget shortfall of nearly $400 million, or nearly 5% of the state’s unrestricted general funds. By 2016, this had reached nearly $4 billion, or about 75%. While oil prices have since rebounded, the state still withdrew $2 billion from its rainy-day funds in 2018.
Yet once revenue collapsed, state leaders still kept doling out money as if the good old days would soon return. Even last year, Alaska’s budget ran to $11 billion, and lawmakers increased spending over the year before, deficits be damned. No wonder the state’s rainy-day funds fell from a combined $16 billion in 2013 to less than $2 billion this year.
Politicians from both parties, including one Republican and one liberal Independent governor, put Alaska into this fiscal mess. In the first budget process since his election in 2018, Dunleavy has done his best to get the state on a firmer footing.
Before leaving office, former governor Bill Walker sent the legislature a $10.2 billion budget for 2020. After his inauguration, Dunleavy responded with an amended budget that included $1.6 billion in cuts. The legislature rejected the new budget in favor of the old one, while proposing a measly $200 million in spending reductions. When the budget reached his desk in July, Dunleavy used his line-item veto to cut a further $434 million. This single act cut Alaska’s estimated deficit by 50%.
Cue the legislative and media uproar. The final budget cut funding for Medicaid, which the previous governor had expanded under Obamacare. It also slashed about 15% of the University of Alaska’s funding. Weeks of condemnation ensued, including in liberal outlets on the Eastern Seaboard. But the legislature couldn’t muster the necessary three-quarters majority to override the line-item veto. Enough lawmakers understood that the University of Alaska, where I used to teach, is a money pit. For instance, it spends 44% more on its students than the average university.
Despite winning this fight, earlier this month, Dunleavy reached a compromise with the university system. He agreed to cut $70 million from its funding over the next three years — including $25 million immediately — instead of a one-time cut of $136 million. Critics say this deal is meant to avert a potential recall election, although the Dunleavy has called it a question of “balance.”
Even this compromise hasn’t stopped the media from piling on. Beyond the university funding, the coverage generally focuses on Alaska’s “Permanent Fund Dividend,” the annual payout that every state citizen receives. The governor campaigned on the promise to restore the payout to the level dictated by a formula enshrined in Alaska law, which lawmakers have been ignoring since 2015.
Following the budget fight, Dunleavy agreed to a first payment of $1,600, while also indicating he’ll call a special legislative session to ensure Alaskans get the full, and legally mandated, amount. This fact notwithstanding, and despite the reality that the dividend is a separate matter from the budget, the media is now trying to claim the governor has broken his promise, in addition to cutting spending.
As of mid-August, Alaska’s budget is done, but the criticism continues. Some vocal state legislators are bellyaching about the governor’s actions. State and national media, meanwhile, take great joy in attacking him and his attempts to control spending. Some commentators have even claimed, as one Washington Post columnist put it, that “Alaska shows why budget-cutting conservatives are destined to fail.”
Never mind that budget-cutting conservatives won.
Now Dunleavy is pushing to balance the budget in the next two years. If only politicians in D.C. would show the same kind of leadership. As Alaska shows, simply having the political will goes a long way.
Joe Connors is a 49-year resident of Alaska and a Professor Emeritus at the University of Alaska-Anchorage.
