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New plan from Alaska House majority would wipe out GOP budget leverage

JUNEAU — A big roadblock for Alaska lawmakers could disappear under a new budget proposal from a House leader that would wipe out the Republican minority's leverage in the final days of the legislative session.

Rep. Paul Seaton, the veteran Republican lawmaker from Homer, says the budget can be balanced without using the Constitutional Budget Reserve, the savings account at the center of legislative gridlock over the past two years because of the supermajority needed to unlock it.

Seaton, a co-chair of the House Finance Committee and one of three Republicans in the Democratic-dominated House majority, is proposing to use Permanent Fund investment earnings in place of the reserve.

The Constitutional Budget Reserve was used by lawmakers to fill deficits in each of the past two years. But it takes a three-fourths vote of each legislative chamber to crack it open.

The 13-member Democratic minority in the 40-member House wielded that leverage to potent effect in 2015 and 2016, negotiating for months to extract concessions from the Republican majorities that controlled the House and Senate.

But now the Democrats are in a 22-member majority coalition, and they're happy to try to bypass House Republicans to balance the state budget.

The House Finance Committee this week gave initial approval to Seaton's proposal to fill next year's deficit with investment earnings from the $57 billion Permanent Fund — a maneuver that could pass with a simple, 21-vote majority.

Seaton, in an interview, described the plan as a way to advance the Legislature past a debate over a single year's budget, moving instead to a big-picture discussion about structural fixes to Alaska's deficit.

"We could be tied up until the end of session in conference committees and everything else if we did not have a funded budget," said Seaton, referring to the special House-Senate committees that typically hash out differences between bills approved by the two different chambers.

He added: "We're passing a fully funded budget, and that gives us the ability to get to work on a fiscal plan."

Homer Republican Rep. Paul Seaton stands with Fairbanks Democratic Rep. David Guttenberg during a break from a meeting of the House Finance Committee at the Capitol on Tuesday. (Nathaniel Herz / Alaska Dispatch News)

The Legislature must use savings because the Alaska Constitution doesn't allow borrowing to cover a budget deficit.

Seaton's proposal was incorporated into a preliminary House Finance Committee budget proposal Tuesday, but it will still have to survive votes in committee and on the House floor.

And then it would face an uncertain future in the Senate. If the Senate majority preferred to tap the Constitutional Budget Reserve rather than Permanent Fund earnings, its 15 members provide ample votes without negotiating with the Senate's five-member Democratic minority.

Senate Finance Committee co-chair Lyman Hoffman, D-Bethel, said Seaton's proposal would make for a good debate, even though he sounded skeptical of spending Permanent Fund earnings before lawmakers approve a longer-term plan to restructure the fund.

"It's unusual, innovative and a very good topic of discussion," Hoffman said in an interview.

But House Republican minority members blasted the plan from their former colleague. Fairbanks Republican Rep. Tammie Wilson said the proposal was "insane" and "draining our savings."

One of her GOP colleagues on the finance committee, Big Lake Rep. Mark Neuman — who last year had Seaton's co-chair seat — called the move a "ploy" by the coalition to avoid a debate with minority members.

"Today, the majority members of the House Finance Committee perpetrated one of the biggest frauds against the public process my colleagues and I have ever seen," Rep. Cathy Tilton, R-Wasilla, wrote in a Facebook post Tuesday. "This was their procedural parlor trick trying to avoid a legitimate debate about further, meaningful budget cuts."

Seaton's plan is similar to Gov. Bill Walker's proposed budget, which also relies heavily on the Permanent Fund's investment earnings.

The fund is at the center of lawmakers' debate about how to fill the state's deficit. The money in the fund's earnings reserve account has traditionally been spent only on Alaskans' annual dividend checks. It was once seen as untouchable by the Legislature.

But there's a growing political consensus that some of the earnings will be needed to cover Alaska's $3 billion deficit, which developed after a crash in oil revenues that once funded 90 percent of state spending.

Walker's proposed budget would withdraw $2.4 billion from the earnings reserve for the current budget year, which is already more than half over. And it would use another $2.5 billion from the Permanent Fund's earnings reserve to help pay next year's bills.

Those withdrawals, when combined with the roughly $1.5 billion in other annual state revenue, add up to some $4 billion — still not enough to cover the $5 billion or more in total general fund spending on state government and dividend checks.

So Walker's proposal relies on the Constitutional Budget Reserve to make up the difference in both years, and would require House Republican minority votes to pass.

Seaton's plan would also make two withdrawals of Permanent Fund cash: one for the current budget year and one for the next.

But instead of spending the first withdrawal on the current year's budget, Seaton is proposing to stash it in a special account, the Public Education Fund — making up the resulting deficit with $1.7 billion that lawmakers already voted last year to spend from the Constitutional Budget Reserve.

Then Seaton would combine the cash socked in the education fund with the second, $1.6 billion withdrawal from the Permanent Fund to pay for next year's budget — eliminating the need to withdraw any more money from the Constitutional Budget Reserve, and rendering the Republican minority powerless.

The proposal has provoked ferocious opposition from the 18-member minority, which took the unusual step of turning out its whole caucus to Wednesday afternoon's House Finance Committee meeting.

Members of the Alaska House Republican minority sit in the audience of a House Finance Committee meeting Wednesday at the Capitol in Juneau. From left, Chris Birch of Anchorage, DeLena Johnson of Palmer, George Rauscher of Sutton, and Dan Saddler of Eagle River. (Nathaniel Herz / Alaska Dispatch News)

The minority members without seats on the committee packed the first two rows of chairs in the audience, blasting out social media posts like a tweet from Anchorage Republican Rep. Charisse Millett that accused Seaton's majority of moving to "disenfranchise" 18 House districts.

Minority members were particularly critical in light of a letter signed by Seaton near the end of the Legislature's budget negotiations in 2015, when he belonged to the Republican-led House majority.

The majority, led by the-House Speaker Mike Chenault, R-Nikiski, was considering a different plan involving the Permanent Fund's earnings account that could have avoided negotiations with the House minority over the Constitutional Budget Reserve.

Seaton, along with five other majority members — four of whom are now leaders in the current coalition — wrote to Chenault objecting to the plan, telling him it was risky and confusing.

The plan was ultimately abandoned and House Republicans negotiated with the Democratic minority to use the Constitutional Budget Reserve instead.

Seaton argued his new proposal is completely different from the one that was circulated in 2015.

That plan, he pointed out, would have transferred some $6 billion from the Permanent Fund's earnings to the fund's principal, which lawmakers are barred from spending, to trigger a clause in the state Constitution that allows the Constitutional Budget Reserve to be spent with a simple majority vote.

"Think where we'd be if there was $6 billion less in the earnings reserve today," Seaton said. He added: "We would have been screwed."

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