Legislators likely headed into overtime, unable to agree on PFD

Alaska lawmakers have been spending the final days of the 121-day legislative session disagreeing over the amount of this fall’s Permanent Fund dividend.

As of Monday afternoon, the House and Senate appeared unable to agree on state spending for the fiscal year that starts July 1, likely pushing lawmakers into an overtime session. This would be the fourth year of extra session time since the cost of the dividend put a strain on tight state finances in 2017.

The Republican-controlled House wants a $2,700 PFD this fall and is willing to draw hundreds of millions of dollars from savings to balance the budget. The bipartisan Senate majority wants a $1,300 dividend and has said it is unwilling to spend savings to boost that number.

The $2,700 PFD is a mathematical impossibility without tapping savings, imposing taxes or significant cuts to public services.

“Primarily, the issue is the dividend. They (the House) are demanding a dividend we cannot afford,” Senate President Gary Stevens told the Alaska Beacon.

The budget reserve fund, currently around $2 billion, has been depleted after years of deficit spending. A three-quarters majority vote of the House and the Senate is required to tap the fund — a high political hurdle unlikely to happen this year.

Gov. Mike Dunleavy, who has won two elections for governor while campaigning for a larger PFD, supports the House number.

In addition to arguing over the dividend, the House and Senate differ on their approach to increasing state funding for public schools. The House approved a one-year boost, while the Senate favors a permanent increase in the state’s per-student funding formula.

The numbers are the same — $175 million a year for about a 14% increase in state funding — but districts strongly prefer the annual certainly of the Senate proposal.

Some House members have proposed reducing the boost in school funding in order to increase the dividend, but Stevens said that would be a difficult sell in the Senate.

“I’d find it hard to tell the public, ‘OK, we’re going to cut education funding to give you a bigger dividend,’” the Kodiak Republican told the Anchorage Daily News.

If lawmakers follow through with the school funding increase, Wrangell would receive about $425,000 in additional state aid for the 2023-2024 school year, a substantial boost to its general fund revenues of almost $5.1 million. State money already covers about 60% of the district’s operating budget.

The Legislature has not changed the funding formula since 2017.

The adjournment deadline is Wednesday night. If lawmakers are unable to pass a budget by then, they could call themselves back to work with a two-thirds majority vote or the governor could call them into special session.

The House was miffed that the Senate has been holding the budget, preparing to send it over for a take-it-or-leave-it vote by the House. That bypasses the joint conference committee of past years when members would negotiate on individual budget items.

“We feel like we’re being cut out of the process,” Speaker of the House Cathy Tilton, a Wasilla Republican, told the Alaska Beacon on Saturday.

The two chambers also remained at odds on Monday over capital budget items — public works, construction and maintenance projects. The Senate was holding the bill and looking for a list of projects the House wanted added to the budget, rather than sending the spending bill to the House for potentially more extensive editing.

Alaska’s budget dilemma goes back to the 1980s, said Gunnar Knapp, a former director of the Institute of Social and Economic Research at the University of Alaska Anchorage, 2013-2016.

“More than 40 years ago, when Alaska was awash in oil revenues, we made two choices that set us up for the political impasse we face, now that oil revenues have dropped,” said Knapp on Monday.

“We got rid of our income tax — which disproportionately helped richer Alaskans. And we started paying out half of Permanent Fund earnings as dividends — which disproportionately helped poorer Alaskans,” Knapp said.

“The fundamental problem we face now is that we no longer have enough money to pay for services Alaskans want and not pay taxes and pay half of Permanent Fund earnings as dividends. Something has to give — but we can’t agree on what. And it didn’t help that many legislators got elected by promising choices we can’t afford or wouldn’t accept.”

Finding a sustainable solution to Alaska’s fiscal challenge “is going to have to include some combination of paying taxes and/or cutting dividends,” the economist said. “But after 40-plus years, many Alaskans think that government should be free and government should pay them money.”

Gary Wilken, who served as a state senator from Fairbanks for a dozen years, including four years as co-chair of the Senate Finance Committee, said the three-quarters majority vote to tap the budget reserve has led to political stalemates for years.

“A small group of legislators can emerge as the true budget arbiters because of the need for a super-super majority of 75%,” Wilken said Monday.

Only a simple majority is needed to access earnings of the Permanent Fund, he noted. “There are billions accessible with a simple majority vote, completely avoiding the brinkmanship and extortion of a few to the detriment of many,” he said.

“Step back and look at Alaska’s fiscal situation,” Wilken said. “We have $77 billion in the bank (the market value of the Permanent Fund) for the benefit of 735,000 residents. There are countries that would die (and some have) for such per-capita wealth.”

 

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