Nearly two weeks after rolling out his plan to close a $1.6 billion budget gap, Gov. Mike Dunleavy is holding firm on a proposal that features deep cuts to public education, Medicaid and the University of Alaska, plus the shuttering of the Alaska Marine Highway System and efforts to repeal certain local taxing authorities.

Meanwhile, the Senate and House Finance committees have begun scrutinizing Dunleavy’s plan, sections of which some lawmakers have called, “short sighted.”

Dunleavy sat down with KTVA's political correspondent Steve Quinn on Tuesday morning to discuss various segments of his budget and initial responses from community and business leaders.

The full transcript of the interview is available below.

Steve Quinn: Governor, thanks for your time. I guess my first question is with the budget. Significant portions have been met with some pushback even from some of your own supporters who supported you in a campaign and still support you, so my question is, are you surprised by the response thus far? 

Gov. Mike Dunleavy: Not really. I mean, this is a $1.6 billion deficit. This impacts, this budget impacts all Alaskans because this deficit impacts all Alaskans. So no, I'm not surprised and it's actually, I think, a good thing for Alaska to have such a deep, passionate discussion as to what the budget should look like because it's going to help us, help determine where we're going to go with the budget, what items do we feel are needs versus wants and what items do we want to fund? So, it doesn’t surprise me.

Quinn: Now, one of those supporters is [Arctic Slope Regional Corporation] and now Rex Rock comes out and says you're balancing the budget on the back of the Inupiaq people, particularly with the legislation. How do you respond to that?

Dunleavy: This is a budget that impacts all Alaskans, not just one specific group, not just one specific locale. This is a budget impacts all of Alaskans because the deficit is so large. It, we can't escape the fact that all Alaskans are going to be touched in one way or another with this budget, with the resolution for the budget.

Quinn: You know, the budget seems to cause, causing a lot of initial angst among community leaders, business leaders, local governments. People are afraid of losing their jobs, their health care, their way of life. Is it justified or is it an overreaction?

Dunleavy: The individuals being concerned?

Quinn: Yes.

Dunleavy: No, I think, I think everyone should be concerned. Again, $1.6 billion. That's a large, that's a large portion of our budget, but it illustrates the gap between what we're spending and our revenues and that gap is not closing. As a matter of fact, we're running out of our savings. In the past several years, we've probably spent $14 billion in the past four or five years out of our savings. And since ’07, we estimate that $24 billion was spent above and beyond what would have been a 2.5 to 2.5, or 2 to 2.5 percent increase in the budget, so we've had a lot of missed opportunities by overspending.

From $14 billion to $24 billion, Steve, we could have, we could have produced electricity throughout Alaska, whether through renewables or dams or gas lines. That could have paid for electricity for eternity for all of Alaskans. That’s gone. We could have used those billions of dollars to build ports the size of Anchorage, if not bigger, all over the state of Alaska. That opportunity is gone. Railroads to Canada; the list goes on and on. That opportunity is gone because we've spent that money on our operating budget.

Quinn: So are people fearing the budget or are they fearing the deficit the most? What do you see?

Dunleavy: I can't speak for everybody, but I know I've talked to some folks that fear the deficit in terms of investment, still staying on the sidelines and not wanting to invest in Alaska until we get our fiscal house in order. But I also think there are other people, all good Alaskans, that are concerned that, if there are reductions of the magnitude that we're proposing, which we are proposing because that's how you close this gap between our revenues and expenditures, that they may, in fact, be impacted, that some of them may lose their jobs, that their programs may go away. This is a reality, but this is something that has to be dealt with this year and it should have been dealt with over the past probably several decades, to be honest with you.

Quinn: Well, speaking of outside investment, you know Fitch Ratings has already come out with two reports questioning your fiscal plan, in a broad sense, saying it’ll, it could cost the state a credit downgrade. It could cost local municipalities, school districts, universities credit downgrades. How do you respond to that?

Dunleavy: I believe, if we close this gap and we have a sustainable budget going out in the future, I think we'll have one of the best, best ratings there is. The key to the future is not just taking, getting this budget under control this year, but instituting the constitutional amendments that we have proposed to engage the people of Alaska on the front end because, remember Steve, the people of Alaska can be a gauge on the back and through the repeal or initiative process if they don't like our fiscal plan, but if we engage the people on the front end with constitutional amendments, if the people of Alaska are allowed to vote on those constitutional amendments by the legislature, and those amendments come back, that vote comes back to the people want those amendments in place, we’ll save more money. It will hem ourselves in to a specific spend, somewhere in the neighborhood of 2, 2.5 percent a year on operating costs. It'll grow our revenues, our savings. I can't help but think we'd have probably one of the best ratings of any state in the country, if we get our fiscal house in order.

Quinn: Now, the Anchorage School District fiscal officials say that your proposed cuts could mean a loss of 1,800 jobs: teachers, nurses, librarians. This comes, again, from the district's chief financial officer. So, what do you tell parents and teachers right now?

Dunleavy: I, this is a local control issue, meaning we give funding, the state gives funding, to local school districts. There's 53 school districts. They decide on how they're going to spend their money. If they want to spend their money on more administration, that's their choice. If they want to spend it on more teachers, that's their choice, but certainly, less money, and we're talking about a $1.6 billion deficit, again, less money of that magnitude is going to impact programs. But are there different ways to deliver education at the local level? I think those discussions need to happen as well. And, so, it's going to be tough on all of us,

Quinn: There's no doubt about it.

Now, David Teal [a legislative fiscal analyst] says that this budget could cost about 5,000 state jobs, including the university and, or actually, government jobs: state, university, local school districts. But even [the Institute of Social and Economic Research] says a total of as much as 17,000 jobs. How do you respond to the jobs forecast from these two people?

Dunleavy: Yeah. It's kind of its kind of all over the map on how many jobs may be lost, but I guess the question I would throw back at folks is if we don't fix this issue, what happens? If we continue to spend and we blow through our savings, we have about $2 billion left in our constitutional budget reserve, that'll be gone in a little over more than a year. Then what's left? The permanent fund. Do we go into the permanent fund and spend that? Then once we get done spending that, then what's left? Taxes. At what magnitude? What, how many taxes and who do we tax? These are the questions that need to be answered, not just how this budget impacts us right today and here now, but how our fiscal policy and our spending is going to impact us over the next five to 10 years. I would ask them the question, what's your solution to this problem? Spend more? Don't reduce the budget? What's the solution to the problem? We proposed a possible solution: reduce the size of the budget to get it in line with our revenues. We won't spend our savings out of the [constitutional budget reserve] if we do that. We don't spend the permanent fund if we do that. That's our solution. What's their solution?

Quinn: [The Institute of Social and Economic Research] also is concerned about the loss of, possibly, about a half a billion federal dollars if Medicaid gets reduced as it’s proposed. Can the state really afford to lose those federal dollars?

Dunleavy: We're working. Our Department of Health and Social Services is working with the federal government right now, as we speak, and has been for some time, on possible waivers, possible ways of doing things differently so that the loss of money that you were describing doesn't necessarily take place. We're working with the federal government on that and we'll see what the result of that is. But, again, we can't continue to spend money at the rate we're spending. We are going to blow through our savings, Steve, in the next year. In 12, 14 months it'll be gone out of the [constitutional budget reserve]. What is the answer?

Quinn: Now, David Teal also said that he thought, with the budget proposal as well as the associated bills that have already been introduced and that are yet to come, it's an unrealistic workload for the Legislature and Sen. Bishop, I believe, even said it's an unrealistic workload for the executive branch. How do you see it?

Dunleavy: We, again, we have an issue with our budget that is, it needs to be dealt with now. Right now. And, you know, we had a bit of a problem with the House getting itself together, but we still have time to deal with this this spring into, if we need to go into, early summer. I'm hoping this takes, this is taken care of in the, a lot of time during the session. But if we don't take care of it, what's the result? If we don't have a fiscal plan going forward that matches our revenues with our expenditures, again, we go through our savings. We don't have the luxury of not dealing with this this year. That's the issue. We have to deal with this problem this year, Steve.

Quinn: Is there anything you're reconsidering? And I ask this in the context of the marine highway which, right now, they're not taking reservations beyond Oct. 1.

Dunleavy: Am I reconsidering? Our budget is out. The discussion is now within the hands of the Legislature and the people of Alaska, where it should be. Our job was to propose a budget, by constitution. We proposed a budget that was balanced. Budgets of the past were not proposed that were balanced based on revenue, but based on revenue and savings; ours is balanced based on revenue. The Legislature is going to have that conversation with the people of Alaska. We’ll see how that ends up. They can move money around. They are actually, they are the individuals, or the entity I should say, the Legislature, both the House and the Senate, that makes a determination as to what they want to see in the budget. We're basically, all we're saying is this is the amount of money we have to deal with.

Quinn: So what about the marine highway system? That seems for some people in this region, anyway –

Dunleavy: Very important, yeah. No, it's very important for people in this region. That discussion needs to take place in the Legislature. How do we deal with a $1.6 billion deficit? Where does the marine highway fit, in terms of priorities? Does it equal the priority of funding of public radio, for example, or some program that may just touch a few people. We have to have that discussion. We have to figure out what our needs are versus our wants and what people are willing to support and fund. I think it's a, it's a discussion long overdue.

Quinn: And what about the concerns and, I’ll go back to what Mr. Rock said about the, the cost shifting to the local communities, whether it's [Senate Bill] 57 with the, taxing the oil facilities or the fisheries tax?

Dunleavy: Absolutely. This is a different way of looking at things and how to deal with this deficit, but, again, we have to close it. How do we close it? Where are we going to get the money? There have been some that propose we take it from the PFD and I know that there's discussions happening now in the Legislature on that. Again, does that take care of the long-term issue if we don't reduce our spend, the amount of money that we’re, the outlays from the treasury? Does that, taking the PFD, actually solve the issue? We're running numbers that seem to indicate within three to five years all of the money allocated under SB 26, the $3 billion dollars out of the [percent of market value] concept from the Permanent Fund will be eaten up in a budget that keeps growing at 3, 4, 5 percent a year or even larger.

Quinn: So what are these communities to do, that could possibly lose this this taxing authority?

Dunleavy: We're all going to have to adjust to solve this problem. We're all going to have to adjust the way we do things, the way we look at things. We're all going to have to adjust with the reduction of programs. We're going to have to adjust at the local level as to what local municipalities want to take up in terms of funding certain, certain programs and certain services. We're all going to have to adjust. That's, that's the conversation we're having now. It's, we can't get away from it.

Quinn: So when this is all done, do the, does the discussion of taxes ever come up, even if it's just a fuel tax to help with the roads or something like that?

Dunleavy: Yeah a fuel tax, I mean, as we know, Steve, is not going to close a $1.6 billion gap. You can't tax your, you really can’t tax your way out of it. You can, I guess you could tax it temporarily, but the long-term, the short-term, mid-term, long-term consequences, I think, of that policy will be incredibly detrimental to the state of Alaska. We just have reports coming out today that New York, Illinois, California, Connecticut, New Jersey are losing taxpayers. The wealthiest are leaving those states in large numbers. The governor of New York came out and said that today. We had a situation also this morning where there are, there are representatives in the U.S. House as well as senators, they're talking about declaring a national emergency on our debt, at $23 trillion. We’ve got problems fiscally throughout this country and in this state and it's our position that the way you deal with it is you spend less money. That's the cure for the problems that we have in Alaska.

Quinn: So the other philosophical difference is, a Permanent Fund dividend payout is separate from the operating budget.

Dunleavy: Yes.

Quinn: Some say it’s still government spending, so can you revisit your position on this?

Dunleavy: We believe that the permanent fund is a transfer from the permanent fund earnings, which is separate from the government spend and the general fund. That's our belief in the administration. We've always believed that that should have been just the transfer, that should be a transfer to the people of Alaska.

Quinn: OK, last question. So, I know I've asked you this before, the Supreme Court believes otherwise. How do you respond to that?

Dunleavy: That's, that's a discussion that we're having right now. That's the discussion that the Legislature’s having right now. But, again, our position is that that money should go to the people of Alaska for them to decide how they want to spend it. And that, I'm sure, is going to be the discussion. Do you want your, the traditional PFD based upon the traditional calculation or do you want someone, do you want to take some of that money and put it into some of these other areas that folks want to spend money on? Our position is, and the feedback I continue to get even this weekend is, people want the Permanent Fund dividend to remain the same and that they're willing to deal with reductions.

Editor's note: Another version of the video above included comments made after the formal interview concluded. Those comments have been edited out at the request of the governor's office.

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