Did Gov. Walker have veto power over PFD payouts? Alaska Supreme Court hears the case.

The Alaska Supreme Court heard arguments on Tuesday in a lawsuit over whether Gov. Bill Walker had the authority to veto part of the 2016 Alaska Permanent Fund dividend, an action he took last year in the face of a large budget deficit.

The veto halved dividends to just over $1,000, causing divisions across the state over whether the governor took the right approach to dealing with Alaska's fiscal crisis. He took the action, he said, because the Legislature had failed to shore up the multibillion-dollar budget gap and dividends would disappear entirely in a few years if he didn't scale them back.

The veto by Walker, a Republican-turned-independent, blocked the transfer of more than $650 million into the dividend program.

But the focus of the lawsuit is not whether Walker made the right policy decision. In introducing the suit against the state-run Permanent Fund Corp. last year, Sen. Bill Wielechowski, D-Anchorage, shifted the conversation to whether the governor had the power to make that decision at all.

Wielechowski, a lawyer, spoke first on Tuesday before the five justices and an audience of more than 60 people. The senator argued that although the Permanent Fund dividend payouts have for decades been treated as an appropriation in the legislative process, they actually aren't. They are "dedicated funds" meant to be spent for the same purpose each year, he argued. Under this classification, they would be exempt from the governor's veto.

The Democratic senator filed the case with Clem Tillion and Rick Halford, two longtime Republican Alaska politicians.

[Is it legal for Gov. Walker to shrink Permanent Fund dividends?]

Alaska assistant attorney general Kate Vogel said that because the Legislature put the Permanent Fund dividend in the appropriations bill, as it has for decades, the money is subject to the governor's veto. She also argued that a mandatory annual dividend payout would violate the state constitution, enabling past lawmakers to shape the spending decisions of future lawmakers.

In November, a Superior Court judge ruled in favor of the state, prompting Wielechowski to bring the case before Alaska's highest court.

There is no fixed date for the court to issue its ruling. Alaska Supreme Court decisions typically take several months and sometimes longer.