Gov. Mike Dunleavy on Friday signed the state’s operating budget while averting a government shutdown three days ahead of the new fiscal year that begins Monday.

Dunleavy, however, cut deeper than the $190 million in the budget lawmakers sent to him two weeks ago, by reducing another $444 million including federal funds and agency spending.

"I believe we're on our way to having a balanced budget," Dunleavy said in a news briefing. "When we close the gap next year completely, we will have a balanced budget going forward. The issue is, and we all know this, we can't kick the can down the road because we're running out of road."

Dunleavy has been pushing for significant reductions to close what he's identified as a $1.6 billion budget gap. The following are the reductions he announced on Friday:

Another $130 million from the University of Alaska. That's in addition to the $5 million the Legislature cut under House Bill 39. The cuts equate to $11,000 per student, according to budget documents.

Reducing the school bond debt reimbursement by $49 million. This shifts cost to the Anchorage School District ($20 million) and the Mat-Su Borough School District ($9.2 million), according to budget documents.

Another $50 million in Medicaid. The Legislature had already cut Medicaid by $70 million. The proposed cuts to state funds initially included $225 million for Medicaid, which would also result in reduced federal funding by $452 million.

A $6 million reduction to the village public safety office program. This includes $3 million in supplemental funding for the current fiscal year and $3 million for next year. It comes on the same day U.S. Attorney General William Barr declared a law enforcement emergency in rural Alaska under the Emergency Federal Law Enforcement Assistance Program. 

Reducing $3.4 million for the state's ocean rangers program, which places U.S. Coast Guard marine engineers on the ships. The funds come from cruise ship passenger fees, so it's really not a reduction. It also comes after a federal judge fined Carnival Corp. $20 million for environmental violations, including dumping "gray water" in Alaska waters.

Lawmakers need 45 out of 60 members to support any veto override, but legislative leaders have long said they do not have the support. The next chance for an override vote would begin July 8 when lawmakers are scheduled to begin a special session. Once they gavel in, they have five days to undo any of the vetoes.

House Minority Leader Lance Pruitt, R-Anchorage, said in a prepared statement that any changes to the governor's vetoes should be addressed in future budgets.

"If our caucus does decide to revisit any of the governor’s reductions, we will do that through the capital budget or a supplemental budget, and not through the process of veto override," he said. "The governor has already said that he will add the capital budget to the call once the legislature authorizes the Permanent Fund Dividend as required by law.”

House Majority Speaker Bryce Edgmon also released a statement on the budget cuts, saying "the Legislature presented Governor Dunleavy with a responsible operating budget that struck a balance between protecting essential services and making tough but necessary budget cuts. Today, the governor made major vetoes that will have drastic, negative impacts on all Alaskans."

Senate Minority Leader Tom Begich, D-Anchorage, took exception to the steep university cuts.

“Governor Dunleavy simply doesn’t value public education in Alaska," he said. "The majority of his cuts cripple our university system - which should be a world-renowned leader in Arctic and global research, and takes away certainty for public schools, educators, and families. “The consequence of governor Dunleavy’s mission will be to drive young adults and families out of this state, which in turn will have a significant impact on our economy.”

Dunleavy rolled out an amended budget on Feb. 13, seeking $1.6 billion in cuts and funding changes while also pursuing $1.9 billion to cover a Permanent Fund dividend that meets the statutory formula.

It created a broader fiscal debate that still rages five months later as lawmakers are set to enter a second special session, this time to debate the PFD’s size.

He shocked lawmakers with proposals like repealing certain local taxing authority to shift $426 million back to the state treasury and cutting $98 million by shutting down the Alaska Marine Highway on Oct. 1 for further study. 

The Medicaid changes for $677 million, including federal funds, prompted a rare rebuke from Sen. Lyman Hoffman, D-Bethel, who said to the Dunleavy administration on Feb. 22 during a Senate Finance Committee hearing:  

“You cannot balance this budget with federal funds," Hoffman said. "Your comments are not apropos of balancing this state’s budget when we are talking about federal funds.

“You say may not affect people’s lives. But they may affect people’s lives. That is the other flip side of the equation. You are, with this proposed budget, playing with people’s lives.”

Dunleavy still has next year to push for additional funding changes and cuts through legislation filed earlier this year. The bills remain alive until lawmakers adjourn from next year's regular session.

Under SB 57 and HB 59, Dunleavy wants to repeal municipal and borough taxing authority where property taxes get collected on oil and gas infrastructure.

Through HB 65 and SB 63, Dunleavy also wants to repeal fish tax authority that coastal communities now hold. In both cases, the state would collect all the taxes rather than split the revenue.

Budget talks are not over.

The Legislature still needs to pass a capital budget, covering road and construction projects. The bill passed during a special session passed but it did not have any fund sources to cover the projects.  That will be addressed either in the upcoming special session or a separate session.

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