Dunleavy vetoes nearly $90 million but leaves school funding intact

Gov. Mike Dunleavy signed Alaska's roughly $15.6 billion budget for the coming fiscal year this week, but not before using his line-item veto to cut nearly $90 million. The cuts fell mostly on funding increases lawmakers had added for health, education, child care and local governments, and they trace to a basic disagreement: how much of a temporary, oil-driven revenue surge the state should spend on ongoing programs.

Dunleavy framed the vetoes as a matter of "long-term fiscal sustainability," with most carrying a one-line note about preserving general fund resources. The extra revenue came largely from an oil-price spike during the U.S.–Iran war that forecasters expect to fade; the budget balances only above about $74 oil, and prices have slid since the ceasefire. Funding ongoing programs with money that may not last, his office argued, courts future shortfalls.

The largest single cut was $20 million for local governments facing high energy costs. Dunleavy also struck $6.4 million to help child care centers keep workers, about $11 million to raise Medicaid rates for in-home caregivers, and $16 million to train workers for a possible North Slope gas pipeline. Smaller vetoes hit teacher incentive payments, Head Start grants, infant-learning services, and a study of school-spending adequacy.

The governor left the Legislature's biggest education spending in place, though — roughly $150 million for school maintenance, $111 million more for operations, and most of a one-time $300 million school bonus — saying the budget made "targeted, responsible use of a temporary revenue increase." By the state's own count, it was the smallest veto total of his eight years in office.

Still, the cuts hit programs with bipartisan support and drew objections from both parties. Rep. Andy Josephson, the Anchorage Democrat who managed the House operating budget, said he was glad the school money survived but that the Medicaid veto would hurt. Some Republicans faulted individual cuts too — including the pipeline-training money, even as lawmakers prepare to weigh Dunleavy's tax breaks for that same pipeline next week.

Whether any of it is reversed is unclear. An override takes 45 of the Legislature's 60 members in joint session, and timing is tight: lawmakers return next week for the pipeline session but may not reach the vetoes before the constitutional window closes. The cuts came the same week Dunleavy vetoed six more bills, bringing his total for the year to 18.