The Alaska Legislature did not hold a single meeting in the first week of the Fourth Special Session. It has been blocked all year on the future of permanent dividend funds. The legislature wrestled with the issue for six years. Almost all lawmakers say they would support a compromise. What is not clear: if this compromise exists.
A closer look at what happened during the last special session may shed light on why things seem stuck during this one.
At the end of the Third Special Session, the Senate Finance Committee introduced a major bill that would balance the state budget and allow permanent dividends from the fund at the level proposed by Governor Mike Dunleavy, although this would take three years.
But the Senate has yet to pass the bill. Supporters of Dunleavy’s budget plan criticized him. On the one hand, because that would not put the PFD in the constitution of the state. Also because it would not reduce the state spending limit. And finally, because it would raise taxes more than they want.
“I have pronounced the word ‘t’ enough and I hate the word ‘income’. It makes it look like a business, ”Republican Senator from Wasilla, Mike Shower, said during a debate on the bill. “We don’t make any money here. We take people’s money here to do taxes. Understood.”
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Shower was referring to $ 700 million in taxes which the Finance Committee said penciled the bill.
Dunleavy did not offer a tax. And it’s not clear how his plan would pay for both the bigger PFDs and the budget, beyond the next two years. What he has proposed is a one-time levy of $ 3 billion from the income of the permanent fund. This should be enough to cover the budget and two years of PFDs, with potential for a third year depending on the growth of the fund.
Some lawmakers oppose the one-time levy on permanent fund income, which would yield not only $ 3 billion now, but also the roughly $ 200 million a year it could generate each year forever. But they really don’t want to do it if it doesn’t fix the problem in the long run.
Republican Senator from Sitka, Bert Stedman, co-chairs the committee that introduced the bill. He is also skeptical of the new taxes. But he said they are needed if the state is going to pay bigger dividends. So, during the Senate session on September 14, he criticized a proposal to lower the new tax number in the bill.
“It would put us in a position where we would have a continuation of a structural deficit,” he said. “That wouldn’t solve the problem. “
Non-partisan analysts predict a gap of $ 7 billion over the next nine years. And paying for it is at least one of the reasons the legislature has been unable to agree on a change to the permanent fund’s dividend formula in the seven years since the oil price drop.
Dunleavy and lawmakers who want higher PFDs but don’t want a major tax also want spending cuts. But neither the governor nor most of the lawmakers who have said they want the cuts have offered to cut state services on a large scale. At least not since Dunleavy reversed his stance on budget vetoes in August 2019. This came after a public backlash against the cuts he made earlier that year.
And that’s important to House Speaker Louise Stutes of Kodiak. She is a Republican who is part of a predominantly Democratic caucus. Stutes said if there are to be much higher dividends, they must be paid. And not with a single deduction from the income of the permanent fund.
“I mean, it’s easy to say ‘I want spending cuts’ just like it’s easy for me to say ‘I’d love to have a big, huge PFD,'” she told the journalists in the middle of the third special session. . “The question is: where will the spending cuts come from? Or how are you going to pay for the big PFD? Show us. If you want spending cuts, show us how you’re going to make it happen.
Dunleavy responded on September 14, first outlining the size of the permanent fund – currently $ 81 billion – and why he proposed the $ 3 billion drawdown.
“We came up with this because we didn’t want businesses to be hit by taxes in a time of business recovery,” he said. “We came up with this because people didn’t want huge cuts to government during a pandemic… a payback period. We proposed it because the people of Alaska could have injected hundreds of millions of dollars into the local economy – all win-win. We have come up with a solution.
Dunleavy and many lawmakers who support bigger dividends have said there is a blueprint for how lawmakers might solve the problem. This is the task force that met this summer, made up of members from both houses and four caucuses.
The group reached consensus on dividends on the scale proposed by Dunleavy. And he endorsed the concept of putting the dividend into the state constitution.
Representative Jonathan Kreiss-Tomkins, a Democrat from Sitka, co-chaired this group. He said it took a long time and careful communication to overcome mistrust and reach consensus, and he believes a solution is possible.
“There’s a cynicism out there that nothing is ever possible, like, ever,” Kreiss-Tomkins said. “And I just don’t think it has to be.”
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There are other proposals that could close much of the gap.
Anchorage Democratic Representative Geran Tarr was among the first lawmakers to introduce budget bills, in the third and fourth special sessions. One of the bills would introduce a 2% statewide sales tax. Another would increase the minimum amount that oil and gas companies must pay in taxes on production.
Tarr said the sales tax would spread the burden more evenly than the PFD cuts, including raising more money from out-of-state visitors. She also proposed that sales tax not apply to certain essential costs.
“I really stumbled on this – how could we achieve something that is not a disproportionate burden on our small rural communities,” she said. “So exempting food, medicine and heating oil as basic and essential necessities seemed like a very good place to start. “
Tarr said a long-term way to cut state spending would be to support earlier intervention through social services for children.
“What I’m trying to talk to people about is to look at it in a systems approach: if we cut the programs today, it won’t reduce the demand for this program and often the result is more costly,” she declared. “What we need to do is reduce the demand for this program, and that will naturally lead to savings.”
Tarr worked with Republicans on some votes, including supporting the levy of permanent fund income to pay larger dividends. However, she is also an outlier in the Legislature and spent several days outside of either caucus earlier this year.
But as of now, it’s unclear whether any bills have enough support to get through this special session. The first meeting of the committee on all bills is scheduled for Wednesday, when the House’s special committee on ways and means is due to consider a bill that would change the PFD formula. This would be the 10th day of the extraordinary session, which is due to end on the 30th day, November 2.