Annual budget impasse over PFD drags into June

  • Sen. Bert Stedman, R-Sitka, listens to Sen. Donny Olson, D-Golovin, during a May 26 meeting of the House-Senate budget conference committee at the Capitol in Juneau. The annual budget gridlock linked to setting the Permanent Fund Dividend has now continued into June, less than a month before the start of the next fiscal year. (Photo/James Brooks/Anchorage Daily News)

Gov. Mike Dunleavy wants legislators to be settling the future of the Permanent Fund dividend for decades to come but first they have to decide what it will be this year.

Visible progress on the 2022 fiscal year budget has stalled as lawmakers again appear stuck in negotiations on the PFD. A June 1 budget conference committee meeting initially indicated as likely by committee chair Rep. Neal Foster, D-Nome, never materialized and Rep. Steve Thompson accused Senate leadership of dragging the process out during a May 26 floor speech.

Fellow Fairbanks Republican Rep. Bart LeBon replaced Thompson as the House Republican caucus’ representation on the budget committee after it became clear finishing work on the budget would conflict with prior commitments Thompson made for early June.

Thompson said he had gotten assurances from legislative leaders that the budget would be settled well before June but that did not happen.

“I hope that it has a fast resolution but I don’t see how it’s going to,” he said of the conference committee’s work.

Senate Republican leaders have mostly stayed quiet during the latest round of negotiations since passing the budget May 19. Senate President Peter Micciche, R-Soldotna, previously stressed a desire to be done with the budget before June.

In prior years an unresolved budget on June 1 for the next fiscal year starting July 1 meant the administration would send out “pink slip” layoff notifications to state employees, but the Dunleavy administration has said the notices aren’t required until later in the month, per union agreements.

At about $4.2 billion in unrestricted general fund spending from the House and just more than $4.4 billion from the Senate without PFD appropriations, the Legislature’s budgets are very close to the administration’s nearly $4.4 billion proposal for agency operations and other general expenses such as debt service, which historically would’ve led to a quick resolution.

However, the House kept the PFD out of the budget and the Senate approved an additional $1.5 billion draw from the Permanent Fund Earnings Reserve Account to pay for PFDs of approximately $2,300 per Alaskan, in line with Dunleavy’s long-term plan for a “50-50 split” of the annual 5 percent of market value, or POMV, draw between the PFD and government spending.

The Senate’s PFD vote came late in the process after many hours of floor debate on the budget and split Republican leadership in the nonbinding caucus. Micciche co-sponsored the PFD budget amendment, while Finance co-chairs Reps. Click Bishop and Bert Stedman — the caucus’ conference negotiators — voted against the larger dividend appropriation.

Stedman has been particularly steadfast in his opposition to ad hoc draws from the Permanent Fund in his years as the operating budget chair. The Senate Finance version of the budget funded PFDs in the $1,000 range, or a $674.9 million appropriation.

Conference member and House Finance co-chair Rep. Kelly Merrick, R-Eagle River, also submitted legislation late in the session to fund the PFD directly with 30 percent of the state’s annual mineral royalty income. Merrick’s plan in House Bill 202 would eliminate the state’s annual deficit based on current revenue projections but would do so via appropriations of $333 million and rising for PFDs in the $500 range, a fiscally expedient but politically challenged approach to the situation.

Dunleavy called lawmakers into a special session May 20 immediately after the Senate passed its version of the budget to finish off the 2022 work and approve his 50-50 split constitutional amendment.

Legislators, on the other hand, have given no indication they will take up the big issues this month. Instead, that is more likely to happen — if at all — during the second special session Dunleavy called for August when the governor wants lawmakers to settle on a revenue measures and future levels of spending cuts.

Revenue Commissioner Lucinda Mahoney told Senators during a May 27 hearing on Dunleavy’s fiscal plan that administration officials do not believe a broad-based personal tax is necessary to close what they believe will be a long-term deficit of about $300 million per year based on projections for increasing oil revenue and continued strong Permanent Fund investment returns.

“There is a recognition that we could have potential market disruptions; however, with the 5-year smoothing (in the POMV), we feel we should have plenty of time to react if there’s a sustained correction,” Mahoney said of a potential market downturn.

The Fund returned just more than 25 percent on its investments in the first 10 months of the 2021 fiscal year and has performed far better than historical averages for the last five years.

Revenue officials said they are working on ways to increase the state’s income ahead of the August special session call, which likely means oil production tax and corporate tax changes in the absence of broad personal taxes.

Numerous legislators have said they believe the annual deficit would actually be closer to $1 billion under a 50-50 plan and current spending.

While the PFD keeps wagging the budget dog, the conference committee members on May 27 did agree to cover ferry operations and a bunch of DOT projects with federal COVID-19 aid.

The Senate’s budget was passed after much of the federal guidance for pandemic aid was published and included a broad spending plan for the money.

Elwood Brehmer can be reached at [email protected].

Updated: 
06/02/2021 - 9:08am