This year’s mercifully brief special session offered a glimpse of possibility for the long-term fiscal planning that has eluded the Alaska Legislature for a decade.
Despite dire fiscal straits and what appears to be the permanent departure of the days when the state budget could be covered almost entirely by oil revenue, we’ve witnessed 10 years of punting on a sustainable solution to Alaska’s budget problem. But mid-May hinted at the potential for long-awaited progress past the annual battle over the amount of the Permanent Fund dividend. For the past several years, wrangling over the PFD has held the budget hostage, sometimes coming perilously close to a state government shutdown as brinksmanship reigns in Juneau (or, as was the case one year, Wasilla). Whatever your preferred method for balancing the state’s fiscal affairs, it’s clear that there’s no time to waste.
The matter is particularly urgent because 2024 will be an election year, and there’s a well-worn pattern of legislators caving to big-spending pressure in order to aid the chances of their own re-election. If there’s a year for long-term budget planning, it has to be this one.
For the first time in a long while, we can be optimistic about a possible solution. The caucus-breaking vote on the state budget on Day 1 of this year’s special session indicates for the first time that a majority in both chambers of the Legislature are willing to put the state’s future first when it comes to balancing the PFD and other state services. Certainly, there was no one reason why each legislator who defected from the House Majority Caucus leadership’s preference for a mega-PFD voted as they did. Some were weary of the dividend dominating debate at the expense of all other fiscal priorities; some recognized that they represent divided districts where a majority of their constituents care more about education funding or other items than the size of their annual check from the government. Still others may have been swayed by capital spending that directly benefited their districts, understanding that the only way to make budget headroom for such projects over the long term is to maintain a reasonably sized PFD. Whatever their reasons, the one uniting principle was a willingness to buck the PFD-above-all orthodoxy that has made budget negotiations so difficult in recent years and accept the so-called “75/25″ plan for 2023.
What makes this year especially ripe for long-term fiscal planning, however, is the acknowledgment of budget reality by many current and former PFD hardliners. Even Gov. Mike Dunleavy, who made a huge PFD the centerpiece of his first gubernatorial campaign in 2018, said “everything is on the table” at a late-April news conference when asked if he could support the dividend allocation formula that ultimately prevailed in this year’s budget. “I always will be a proponent of making sure that the people of Alaska have in their hands as much money as possible, but at the same time, we all realize that in order to get a fiscal plan on the table, everyone’s going to have to give a little bit,” Dunleavy said. That’s not something we’ve heard from this governor before, and it’s a hopeful sign that responsible fiscal planning is possible. Even the House Majority Caucus leadership, which voted against the budget, didn’t exercise the “nuclear option” of refusing to bring the budget up for a floor vote or holding the budget hostage over the effective date, tactics that previous PFD hardliners have used to try and force a higher dividend. Although House leaders signaled their preference for a mega-PFD by voting no on the balanced budget, they at least didn’t stand in the way of the members of their caucus and the House minority who’d had enough of the dividend fight.
So the time is finally ripe for a special session focused narrowly on developing a long-term fiscal plan. As we’ve opined in this space before, the first step legislators should take is a constitutional spending cap that covers not only state operating budget spending but also the PFD. Such a cap would demonstrate to Alaskans that lawmakers won’t spend out of control at the expense of the Permanent Fund, and it would also help ensure that legislators focused on re-election won’t juice the PFD amount in campaign years. Some argue that lower oil revenue creates an artificial spending cap, but rest assured that higher oil prices will return, and with them, financial discipline will go out the window. With a cap in place, other aspects of the budget fight that have seemed intractable would be far easier to resolve.
Although it wasn’t always rosy, legislators have shown real promise this year in their ability to compromise in the better interest of Alaska. Let’s keep that ball rolling. Governor Dunleavy should call an October special session in Anchorage with a narrow, achievable focus on the sole issue of a spending cap, and lawmakers should finish the work they started in passing a balanced operating budget. This year can be the year.