Fourth special session begins without budget, PFD fixes in sight
JUNEAU — The Alaska Legislature began its fourth special session on Oct. 4 with low expectations and little hope that legislators will be able to end their annual struggle over the Permanent Fund dividend.
For the past six years, lawmakers have debated the size of payments from Alaska’s trust fund, turning the issue into an annual battle that has consumed legislative attention and repeatedly brought Alaska to the brink of a government shutdown.
Gov. Mike Dunleavy convened this session, asking legislators to pass a constitutional amendment that would guarantee future dividends and pay them according to a new formula.
“In the end, if there was ever a time to settle this issue, it’s now,” Dunleavy said.
But that seems unlikely.
“I don’t think the session is going to be very productive,” said Senate Minority Leader Tom Begich, D-Anchorage.
It takes 27 votes in the House and 14 in the Senate to send a constitutional amendment to voters in the November 2022 election.
Right now, legislators say there aren’t enough votes to pass the governor’s proposal or any of the alternative amendments proposed by legislators themselves.
That’s because most of those amendments call for larger dividends and require additional money.
Lawmakers could overspend from the Alaska Permanent Fund, breaking a limit installed in 2018. They could cut state services, freeing more revenue for the dividend. They could pass tax increases or install new taxes that generate additional revenue for the dividend.
Senate President Peter Micciche, R-Soldotna, is among a group of legislators who has promoted an “all-in” idea that uses multiple options simultaneously.
He frequently analogizes the situation to a machine with a variety of control levers, each representing a different option. When it comes to a constitutional amendment, he said, there isn’t a way to move the levers in such a way that gets 14 votes in the Senate.
In the state House, Rep. Andy Josephson, D-Anchorage, said the “politics are nearly insurmountable.”
A bipartisan, bicameral working group made some progress this summer. It agreed on what the state should expect for revenue and expenses in the next several years, what a proposed dividend would cost, and on the available options to pay for it. But because the House and Senate are divided about which options are best, no one idea has the needed votes.
“I really don’t think anything is going to come out of this session because we’ve had a lot of this stuff with us here for the past seven months,” said Rep. Mike Cronk, R-Tok.
Any constitutional amendment wouldn’t be put into place until after next year’s election, so the governor has proposed to increase this year’s dividend to what it would be under his proposal.
If Dunleavy’s proposed formula were in place this year, it would result in a $2,350 dividend instead of the $1,114 Alaskans will receive starting this month. That increase would cost roughly $791 million.
New taxes would take at least a year to implement, Department of Revenue officials have previously testified, and budget cuts would also take time to implement. That leaves overspending from the Permanent Fund.
The earnings of the Alaska Permanent Fund are now the largest source of revenue for state services, accounting for roughly two-thirds of the state’s budget. Spending more from the fund today means less money invested and lower returns in the future, which has caused lawmakers to reject overspending.
Dunleavy argues the fund gained a record $16 billion in value during the last fiscal year. He says larger dividends will aid the state’s economy, which is continuing to suffer from the COVID-19 pandemic.
”You never hear that when it comes to taking the PFD and cutting it severely out of the hands of children and elders, that has a detrimental effect, especially in the environment that we’re experiencing today, with supply chain disruptions, inflation, uncertainty, people whose hours were cut,” Dunleavy said.
When it comes to the budget, he said legislators should see that holding a “no-overspend” position has political consequences.
”If they can’t see that, maybe to some extent, that’s at the root cause of the inability to come up with a decision,” Dunleavy said.
Democratic legislators say Dunleavy’s reluctance to consider new revenue without a statewide vote is contributing to the problem.
”You know, then the Legislature would really love to have him engaged in robust conversation during this fourth special session,” said Rep. Ivy Spohnholz, D-Anchorage.
Dunleavy said that if a revenue bill were included in a package of legislation to deal with the dividend issue, he will reserve judgment until he sees it.
“I would take a look at the components within the framework of a full solution. And if there is a viable, coherent, sustainable long-term solution, I would take a look at that package very seriously. But again, it’s not sitting in front of me right now. So I need to see what that looks like,” he said.
As an alternative to a constitutional amendment, lawmakers could pass a new law. Doing so would require 21 votes in the House and 11 in the Senate, but there’s no guarantee that future legislators would follow that new formula.
In 2017, the Alaska Supreme Court ruled that the formula in place at the time — one used since the 1980s — was “subject to normal appropriation and veto budgetary processes.”
In other words, the governor and Legislature could choose to follow it or not. A new formula in state law would face the same problems.
“I can tell you, that a statute is not going to engender the confidence of Alaskans. They won’t buy it,” Dunleavy said.
In the state Senate, lawmakers proposed a formula change at the end of the third special session.
That bill proposed to gradually raise the dividend over several years, reaching Dunleavy’s preferred level if the state raises $700 million in additional revenue.
That bill was debated but failed to pass the Senate before the end of the third special session. Micciche said that with adjustments, it could be a first step toward an eventual solution.
“I think once people are comfortable with (the bill), then I think you have a higher probability of the level of support it would take for a constitutional amendment,” he said.
“Right now, I don’t know if you have 11 votes to get the PFD under the constitution. Once people are comfortable with the new calculation, that becomes a lot more likely,” Micciche said.