Two weeks after his budget was released to the public, Alaska Gov. Mike Dunleavy sat down with Daily News reporter James Brooks for 15 minutes on Tuesday morning to discuss public reaction to the budget, how his budget differs from his campaign promises, and his view for the state. It was one of several interviews with Alaska news media. The transcript has been slightly edited for clarity.

ADN: Well, to get us started, I wanted to ask if there’s a difference between the way Alaskans are seeing the budget — the reaction that we’ve seen — and your view of it. Is this budget what you would actually like to have happen? Is it intended to start conversations, or something else?

Gov. Mike Dunleavy: The purpose of this budget is to have an honest, real conversation with Alaskans. And you can only do that by having an honest, real budget which demonstrates that we have a $1.6 billion gap, that our revenues are pegged at $64 a barrel ... And then what the draws are out of your SB 26. (Senate Bill 26 is legislation passed last year that sets rules for the state to spend money from the unprotected portion of the Alaska Permanent Fund.)

We are taking a position that the full dividend should be paid. We’re not 100 percent sure what the legislature is going to do at this point.

So we want to have those conversations, run the real numbers of where we’re at. We’d also like to have conversations as we move forward on how the last couple of years are an anomaly, not the reality, of the previous 20 years, and how we can no longer afford this, and how this delta really represented about $24 billion that if did not go into (the) operating (budget) — it went into some capital — but operating, you would have been able to provide free electricity for all of Alaskans for eternity, multiple ports and harbors the size of Anchorage, railroad links to the Lower 48, the list goes on and on and on what we could have built with this money. It’s gone. So those are the discussions we want to have with the legislature and the people of Alaska, that I think we all agree on the numbers now, and then now it comes down to what do we value and what do we want to see in the budget funded.

ADN: That’s one of the things I wanted to ask you. What’s your vision for K-12 education or the university? What do you want those to look like? Should we take the figures that are in the budget as what you want it to look like?

Dunleavy: My vision when we started this was a mathematical issue. This, first of all, was not judging programs and based upon outcomes, per se, or how people value the programs. This was a mathematical issue first to get our expenditures in line with our revenues.

In that process, what is K-12 going to look like? What’s the university going to look like, ferry systems, you name it? That’s a discussion that we need to have at the at the legislative level. What do we want it to look like? Do we, can we deliver effective education in a smaller model? Can we deliver effective university education at universities that focus on three or four core areas and do it well?

These are the questions that we all have to ask and answer.

ADN: But what do you want?

Dunleavy: ...I want to — we want, we can’t even get to that point until we have a sustainable budget, because if we don’t have a sustainable budget we’ll be having these conversations over the next two years until the savings runs out. I want to have effective education. That’s what I want to have. I want an education where all kids can read and do mathematics at least at the algebraic level. That’s what I want. What does that look like? I think we have lots of room for discussion on what that looks like and how we get there.

ADN: OK. And you had said first it’s a mathematical thing and then whatever we can fit inside that box?

Dunleavy: That’s the position that we’re taking, yes.

ADN: OK. You had said that one of the principles of your budget is sustainability —

Dunleavy: Yes.

ADN: — and predictability.

Dunleavy: Yes.

[Your support makes independent reporting from Juneau possible. Subscribe to the Anchorage Daily News / adn.com now]

ADN: Can we have that as long as our budget is tied to oil prices? Or are we always chasing the price of oil?

Dunleavy: I think we can have that. But you have to hem ourselves in so that we have more of a sustainability issue like we did for 20 some years in which the budget is growing at 2 percent or 2 1/2 percent here. (Gestures to a chart showing state spending over the past several decades.)

If we do that, we can utilize our savings. The CBR (Constitutional Budget Reserve) replenishes itself by about $100 million a year through fees and settlements. If we can keep our growth per year down under $100 million we could service it just through the CBR’s $100 million that they bring in every year going forward. That gives us time to get more oil online to build up our savings again and then be able to use that money for capital projects to continue to build Alaska.

So I think through sustainability — this is why the constitutional amendments are absolutely crucial for the long term. (The governor has proposed amendments that would limit spending and require voter approval of new taxes.) We’re dealing with the budget for this year. But the constitutional amendments are going to be the thing that hems us in so that we’re not spending all of our savings. The thing that people aren’t talking about is every time we come into a windfall, we spend it. It’s gone, gone, gone, gone. (Gestures to chart of past UGF expenditures, pointing to past spikes in oil prices with each “gone”.) We spend it. It’s history. Twenty-four billion dollars roughly in that area from about 2007 to today. Twenty-four billion gone.

The other thing that people are talking about is they might say ‘Yeah, that was, you know, that’s unfortunate. We could’ve built Alaska with that.’ But when you grow these programs you’re still going to be — you’re still going to have to come up with an extra $2 billion dollars — $1.6 to $2 billion — just to sustain that growth at 5 percent or 6 percent or whatever, right. We’re saying it has to be sustainable and get it done. We lived through this area. No one died. (Gestures to late 1990s and early 2000s on the chart.) We performed our functions. Why do we have to accept this as the new norm? Why can’t we have an increase of 2 percent a year or 2 1/2 percent a year and then save, put our savings way to pay down pension obligations? We could’ve paid off all of our debt with this. (Gestures to 2008-2014 oil spike.) We could have been so much better shape, but we used it on things that we can’t even tell you what we used it on.

And then people will say to you, well isn’t that the legislature’s job to to to deal with spending and taxes? It is. But remember two things, well three: We go to the people for bonds. That’s obligating future revenues to certain projects. We ask them to vote on that. At the local level, Anchorage, Mat-Su, you ask the people to vote on any taxes. That’s part of their guidelines. And we have a repeal and initiative process that the framers put in the constitution, in which the people of Alaska — if they don’t agree with a fiscal policy — they can unravel it at the back end. What we’re saying is if the people have the right to vote on that, to institute a tax, to not institute a tax, etc, etc., why not put that on the front end so that we can have fiscal durability and sustainability going through? Because if the people agree with what we’re doing on the front end, there’ll be no need for repeal or an initiative process.

That's what we're saying with the constitutional amendments.

ADN: I want to ask you about something that just David Teal just pointed out upstairs (in the morning Senate Finance Committee meeting). He had said the governor has proposed that one of the principles is not spending from savings in the budget. There’s a provision that calls for spending the remains of the statutory budget reserve. Can you reconcile that for me?

Dunleavy: Well, we’re really, I mean we’re really focused on the CBR and the earnings reserve.

ADN: OK.

Dunleavy: And that’s what we’re looking at.

ADN: OK. So when you say it’s spending from savings —.

Dunleavy: It’s CBR and earnings reserve.

ADN: OK. How much have you talked to folks outside of this building, outside of government, about the budget and what have they said?

Dunleavy: You know, I was up in Anchorage and the Mat-Su this weekend, and Fairbanks, and I wasn’t surprised, but I had a lot of people come to me that were not associated with special interests. These are people — elderly people, businesspeople, literally said, keep doing what you’re doing. You’re speaking for us. This is why we elected you. We have to fix this problem. These are average people. When you go and you talk to folks that are associated with special interests, that that’s their job, they’re going to tell you what their group wants. But even some of those people, when you get them alone, they’re saying, you know this is going to be a proper organization and they’ll whisper, ‘We hope you fix it.’ They know this is a problem. There’s no one I’ve come across that has said, ‘Oh no, you have a pot of money under your chair in the office, we know you have more money. You’re hiding more money.’ Everyone knows that the deficit is $1.6 billion, our revenues are $64 a barrel based upon X amount of production. They know where the numbers are.

ADN: And this was for Jack Coghill’s funeral?

Dunleavy: Right.

ADN: One of the things someone had asked me was, they’d said, ‘Hey, Governor Walker went out and did town hall meetings across the state. Is this governor willing to do that?’

Dunleavy: We’re going to be doing that, yes.

ADN: OK. During your campaign you had told folks in Ketchikan and elsewhere in Southeast Alaska that you didn’t intend to slash the ferry system.

Dunleavy: Correct.

ADN: Obviously we’re seeing some pretty big cuts to the ferry system right now. How do you reconcile those two?

Dunleavy: We did not have access to the internal documents and budgets that the (prior) administration had. We were outside of the administration. At that point we were campaigning, we were not inside. Once we got inside, we realized that we were not going to have revenues of $75 a barrel oil. Once we got inside and actually saw what the budget really was in terms of supplementals and moving money from one year to the next and realized that the the deficit was going to be larger than we thought and we didn’t have the revenue, then we had to make some decisions across the board. And so now, am I looking forward to cutting, am I looking forward to impacting the lives of of individual Alaskans and groups of Alaskans? No. But because of the $1.6 billion (deficit) and because of revenue not at 75 but at 64, we’ve had to make some decisions. And this is part of decision process and part of the preliminary budget that we sent in. Again, the legislature can have a discussion as to what they want to fund and what they value, but we don’t have the money to fund everything.

ADN: You were a member of the Senate Finance Committee. Why say you were outside of government? Where’s that coming from?

Dunleavy: We didn’t have the ability to look internally into the administration’s budgeting process and where they were going to put money or how they’re spending money. We didn’t have that ability. We didn’t. We would ask for presentations and we would get presentations, but we didn’t get inside and were able to see the nuts and bolts and actually what was going on.

ADN: OK. Just to build on that Senate Finance Committee thing, I don’t know if you’ve been following the reaction of what the members of the committee have been saying this time around. Have you been following that at all? I’m curious what you think.

Dunleavy: Not on a daily basis, so fill me in.

ADN: Sure. I’m curious what — the legislature seems generally reluctant to accept all the cuts that you’ve proposed. And I’m curious what your thoughts are on that if the legislature is reluctant. I mean, what do they need to do to meet your approval to where you won’t come in and veto a bunch of things?

Dunleavy: We’ve got a $1.6 billion deficit. How do they anticipate to fix that? What is their method by which they’re going to fix that? Where are they going to get the money? Taxing Alaskans, I think, is a bad idea. There was an article this morning on five states: New York, New Jersey, Illinois, California, and Connecticut. They are hemorrhaging people, especially people that have money, they’re hammered even more — as governor of New York Cuomo said, this is a problem for New York. You also had an article this morning in which there are congressmen and senators talking about declaring a national emergency on the public debt. Twenty-three trillion dollars. It’s a serious issue. Wherever you turn, when people are spending more money than they have, it’s a problem. So if the legislature can explain to me how they want to continue to spend more money, how are we going to pay for that going forward? And do they have any intention at all to hear the constitutional amendments to allow the people of Alaska to vote on whether they want this increase of 5-6-7 percent a year to continue, and where we going get the money to do that?

ADN: You said taxing Alaskans is a bad idea. A lot of the reports I’m seeing coming back from municipalities are saying that with the way revenue sharing is changing, we have no choice but to pass on at least some of those cuts to our taxpayers. Doesn’t this budget effectively pass taxes onto Alaskans?

Dunleavy: It’s a burden on all of us. Do we want to tax government by reducing the size of government or do we want to tax residents whether it’s statewide or residents of municipalities? Do we want to tax them to pay for some of this? That’s a big question. My concern is that the cost of living in Alaska is so high now that any additional burden on taking money out of the pockets of people; we’re just going have more and more those folks think about going somewhere else where it’s cheaper to live and where there are more economic opportunities. Alaska has always been a high-cost state. We get that. The question is: At what point do you take certain amount of money and then people decide to leave and it’s not worth being here anymore? That’s something we all should be concerned about. It’s not as if people have been sitting around saying, ‘You know, you never asked me to tax me. I’d love to. I’d love to be taxed.’ It costs a lot here. Your health care costs a lot here. Housing costs a lot here. Energy costs a lot here. Travel costs a lot here. It’s more than other states. So even with their taxes in places like Idaho or Mississippi, and we have no tax here, even a little bit of tax is going to really get people to think about leaving. And then there goes your tax base. It’s happening in New York, it’s happening in California, New Jersey, Connecticut. It’s happening in those states.

ADN: Why is people leaving bad for Alaska? Because we don’t pay an income tax or sales tax, our budget in fact improves if people leave.

Dunleavy: It impacts your economy. You have less people in the economy, they’re buying less goods and services, they’re building less houses. You end up getting a depressed economy. It shrinks and shrinks and shrinks. It’s not necessarily a good idea.

ADN: One of the things that lawmakers and others who have visited you have told me is that you’ve asked them to surrender their cell phones when when they meet with you and I was wondering why that is.

Dunleavy: I don’t like texting in meetings. I don’t like phone calls happening in meetings. I don’t. We don’t have cell phones in our meetings for that very purpose. So anyone that comes into our meetings, we ask them leave their cellphones so we don’t have to be distracted by any of that stuff. If I go to any of their offices or if I go anywhere else and they have a rule that says no cell phones or no shoes or whatever, I’ll follow the rule, but we don’t have them any of our meetings.

ADN: OK. It’s nothing to do with recording or anything like that?

Dunleavy: Mainly distractions on calls, mainly distractions on textings. And I would prefer that people didn’t record unless we had a conversation, like you recording now, we know that. But the whole cellphone, the whole playing with the phone, it’s a distraction to meetings.

ADN: The Alaska House of Representatives, it appears likely, will not pass your PFD payback plan. What do you think of that?

Dunleavy: I think the people of Alaska have to pay close attention to what the legislature does.

I think they’re going to have to justify a higher spend in this budget. I’m assuming that’s why they’re not going to pass it. I would say that’s a bad idea. We talk about the economy. People are saying if you reduce the size of the budget can impact the economy. You take money out of the hands of individual Alaskans, that’s going to drive your economy. (A higher Permanent Fund dividend) That’s gonna help your economy better than higher state spend. Is allowing the people of Alaska to spend their money. I think it’s a bad idea. I think they should rethink that. We have money in the earnings reserve to pay the people the statutory amount, the full PFD.

One last thing I would say a lot of the legislators are going to tell you that they’re listening to the people. That’s great. Take it one step further. Allow the people to vote on the constitutional amendments. If you really believe you’re listening to your people, the very people that elected you, then they should be accorded the respect to be allowed to vote on the Constitutional amendment to see where we want this state to go.

ADN: The thing I wanted to ask you — to tie in to the ferry aspect — is do you think you set expectations a certain way during your campaign and people were expecting something different and so they’re surprised now?