House panel rejects statutory PFDs in-lieu of energy rebate, education funding
The state budget bill taking shape in the House would fund the state’s base education programs for two years and provide “energy relief” checks of about $1,300 plus dividends to Alaskans, but still falls well short of how much of the state’s latest oil windfall Gov. Mike Dunleavy wants to dole out.
House Finance Committee members shot down an amendment by Finance co-chair Rep. Neal Foster, D-Nome, to pay dividends of upwards of $4,200 per eligible Alaskan based on the statute in law via a 4-7 vote March 21, but the 2023 fiscal year budget still calls for paying out more to Alaskans than at any time since former Gov. Sarah Palin was in office.
It was 2008 when oil prices spent much of the summer above $130 per barrel and lawmakers approved more than $3,200 per person in PFD and energy rebate checks.
“I think if there’s ever a time to stick with the statutory, full PFD with the cost of energy, food, supplies and everything — I think that time is now,” Foster said prior to the vote.
The statutory PFD calculation would have the state pay out nearly $2.8 billion in dividends this fall.
As it stands, the House budget would pay out the energy relief checks along with PFDs of nearly the same amount, which add up to nearly $1.7 billion going out as checks to Alaskans, in line with the 50-50 annual split of Permanent Fund earnings revenue that Dunleavy has so far unsuccessfully called for the last two years.
However, the governor insisted the Legislature add a $795 million supplemental PFD payment to the 2022 budget to cover the gap between the PFDs of $1,114 per Alaskan approved by the Legislature and paid last October and the 50-50 split that would put dividends at about $2,500 per person and rising each year.
It all comes down to how lawmakers want to handle the first budget surplus in years after consistently cutting dividends to avoid even more severe cuts to state services than have been enacted since state revenue fell off the table in 2015.
Dunleavy is proposing payments totaling $3,700 per person this year while also putting nearly $3.4 billion in savings before 2024 to start replenishing the roughly $16 billion in savings the state has spent over the past decade. That’s based on the administration’s spring revenue forecast published March 15 that calls for oil to average $101 per barrel in state fiscal year 2023, which starts July 1.
The House plan would instead put about $2.3 billion in savings over the next year-plus and forward fund the 2024 fiscal year K-12 budget with $1.2 billion.
Alexi Painter, director of the nonpartisan Legislative Finance Division noted in March 18 testimony to House Finance that the administration’s projection for an additional $3.6 billion in revenue through 2023 is based on an oil price forecast done in early March, when the price of Alaska North Slope crude hit a recent peak of $125 per barrel. That could be significant, according to Painter, because state Revenue officials rely on oil futures markets, which likely showed higher near-term prices, as well, when the daily spot price was at its highest. Alaska oil prices have fallen below $98 per barrel and gone back up to hit $114 per barrel March 21, in the weeks following the Revenue’s forecast.
At the same time, the administration’s move to a futures-based oil price forecast has generally been slightly more accurate than analyst-generated predictions, likely due to the fact that a price forecast based on futures markets is the more up-to-date methodology, he said.
Regardless, most experts believe this oil windfall will be relatively short-lived.
“As we’ve seen, oil has been extremely volatile with world events, but the futures market does not believe these prices will last,” Painter said March 18. “Things have not changed nearly as much in the long-term as they have in the short-term.”
The state’s forecast calls for Alaska oil prices to fall back under $80 per barrel by 2026.
Forecasting more revenue also added about $150 million to the state’s minimum 2023 oil and gas tax credit bill, for a total payment of $349 million. The tax credit payment calculation — which lawmakers have used some years and ignored in others — is based on a percentage of expected annual oil production tax revenue.
The current $7.7 billion unrestricted general fund 2023 House budget proposal would balance if oil averages approximately $95 per barrel next year, according to Painter. It would balance at about $75 oil without the $1.2 billion pledge to forward-fund the 2024 education budget.
Fairbanks Democrat Rep. Adam Wool stressed that the added education funding is a one-time expense to start rolling funding forward every year.
Overall agency spending is up just more than 5% at about $4 billion in the latest House budget. That level of annual growth and 50-50 dividends would end budget surpluses after 2025 based on current projections, according to Painter, while limiting budget growth to long-term inflation projections of 2.25% would extend surpluses another year and add to what could be saved in the interim.
“That difference of a couple percent doesn’t sound like much, but when you compound it over a decade it’s significant, Painter said. “When we’ve had oil revenue in the past we have grown agency operations much faster than inflation.”
Elwood Brehmer can be reached at [email protected].