Alaska Legislature

Alaska House again delays budget vote as pressure mounts

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JUNEAU — The House majority on Friday again delayed a vote on a budget that includes megasized dividend payments that could drain state savings, as lawmakers face mounting pressure from interest groups to oppose the bill passed by the Senate earlier this week.

The Senate’s version of the budget, which passed Tuesday, would reach into state savings to cover $5,500 cash payments to Alaskans.

The House was originally expected to vote on whether to concur with the Senate’s version of the budget on Wednesday. However, with Gov. Mike Dunleavy reportedly putting pressure on House members to vote in favor of the Senate plan, House Speaker Louise Stutes — a Kodiak Republican who leads a coalition majority of Democrats, Republicans and independents — has delayed the floor session repeatedly in the hope of securing enough no votes to ensure that the budget is instead sent to a conference committee. There, members of the House and Senate majority and minority would have to agree on a compromise between the Senate and House versions of the budget.

The Senate’s decision to pass a full statutory $4,200 Permanent Fund dividend on top of $1,300 energy relief checks would cost the state $3.6 billion and do away with the Senate’s original plan to leave more than $1 billion for savings that could be used to forward fund education spending beyond the coming fiscal year.

Over the past two days, a growing number of business groups have been urging lawmakers to oppose the Senate budget, saying it would stifle economic opportunity in the state.

Dunleavy, a Republican, has not spoken publicly about his position on the Senate budget. But he has long been a supporter of the full statutory dividend. Earlier this year, he asked the Legislature to pass a budget that included a dividend of at least $3,700.

The operating budget that passed the House last month included around $1,300 in energy relief payments and a $1,300 Permanent Fund dividend, for a total of $2,600 — less than half of what the Senate included in their version of the budget this week.

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Historically, the House has almost always rejected the Senate’s version of the budget. The last time there was no conference committee on the operating budget was in 1982.

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The House is now set to convene Saturday at 10 a.m., but that could be delayed again by Stutes. The House is constitutionally obligated to meet no later than Sunday, and the Legislature has until May 18 to pass a budget, or lawmakers may be forced to enter a special session.

“The determination of when to go on the floor is taking longer than anticipated, but the delay is not being made lightly,” House majority spokesperson Joe Plesha said in a statement. “The decision whether to concur or not with the Senate’s budget will have far-reaching impacts on the future of Alaska. The House coalition was founded on the principle of fiscal responsibility and they take that obligation too seriously to rush the outcome.”

‘Broken’ budget

Constituents have been reaching out to lawmakers’ offices, asking them to either support or oppose the plan that would put a lot of cash in constituents’ pockets but depends on oil prices remaining high to avoid a fiscal cliff.

The groups opposing the Senate budget so far have included the Alaska AFL-CIO, the Alaska Bankers Association, and Keep Alaska Competitive — a coalition of businesses tied to the state’s resource economy.

“We are concerned that the unsustainable budget action taken in the Senate this week, and the potential response by the House to solidify that action in these remaining days of the legislative session, will destabilize our system now and into the future,” wrote Todd MacManus, president of the Alaska Bankers Association, in a letter sent to lawmakers and the governor’s office.

The budget as currently drafted “is broken,” MacManus said. “If enacted, we would anticipate negative downstream effects, including prolonged uncertainty and increasing risks leading to higher costs for Alaska’s businesses and families and a lower level of economic opportunity in the future.”

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In a joint letter, the Alaska Miners Association, Alaska General Contractors, Council of Alaska Producers and the Alaska Support Industry Alliance wrote to legislators that a concurrence vote “is not conducive to a long-term, sustainable fiscal plan.”

“It is not the responsibility of our organizations to be influenced by potential deals that we are unaware of that are being made between parties in Juneau,” they wrote.

Dunleavy’s office on Friday declined to comment on the letters urging the Legislature to reject the Senate’s budget.

Educators, too, are worried about a budget that jeopardizes future funding for public schools by eliminating forward funding of education and draining savings that could lead to more cuts after years of austerity.

“Alaska students, parents, and educators have just been through one of the toughest school years in recent memory. The budget passed by the Senate this week couldn’t have come at a worse time,” said National Education Association-Alaska President Tom Klaameyer in a statement. “This budget effectively eliminates a full year of education funding and creates a structural deficit that will likely lead to future cuts.”

The fact that the Legislature was apparently giving serious consideration to the $5,500 payments prompted deep exasperation among those who have been pushing for years to adopt a comprehensive fiscal plan that would detach the state’s budget process from wild swings in oil price.

“That’s always been the problem — everybody knows that it’s volatile,” said John Davies, a former Fairbanks Democratic legislator who co-chaired a fiscal policy caucus two decades ago. “So, we’ve always been on a roller coaster of high and low oil prices.”

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Andrew Halcro, an Anchorage Republican who was also part of the caucus, said he’s become “numb” to the Legislature’s tendency to boost spending when oil prices go up.

”I’ve watched this since 1994,” he said. “Nothing’s changed.”

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Nonetheless, Halcro said he’s “stunned” by the move toward paying dividends and energy relief that could exceed $5,000 per Alaskan — five times the amount paid last year.

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He said the money lawmakers want to spend on dividends would be better directed toward savings, infrastructure repairs and a few key capital projects, along with neglected government programs like education, public safety and transition programs for people leaving prisons.

”That’s the question we’ve never, ever, ever answered in this state: There is a tomorrow, so what about it?” Halcro asked. “What are we going to do? What is the state going to look like? And we’ve been treading water and losing people for eight years.”

‘A grave risk to Alaska’s economy’

In interviews Friday, economists said it’s hard to quantify specific impacts of the proposed payments since they’re effectively unprecedented. But they offered a few observations.

The $3.5 billion in dividends and energy relief would represent roughly 7% of Alaska’s gross domestic product, said Brett Watson, an economics professor at University of Alaska Anchorage’s Institute of Social and Economic Research.

Between 10% and 20% of that total, he estimated, will ultimately go to the federal government when Alaskans pay their federal taxes on that income — which would represent at least $350 million.

It’s not clear how much the payments would worsen an already-high level of inflation, but it’s hard to imagine that the money would somehow make the problem better, economists said. Matt Berman, another ISER economics professor, said he would expect to see more travel on vacations and by rural residents coming to Anchorage for shopping at stores like Costco.

”It could give Alaska Airlines and their competitors an excuse to raise airfares, because they’re already tight and they can’t increase the flights because they don’t have enough pilots,” Berman said. “Good luck getting a seat to Hawaii for the Christmas holidays, and good luck trying to get back to Alaska after Thanksgiving break, if you want to go Outside.”

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[Earlier coverage: House delays vote on budget that could send $5,500 to Alaskans and drain state savings]

Watson said heavy spending on dividends also risks creating economic uncertainty that causes businesses to reconsider their investments. Stashing less money in savings gives the Legislature less flexibility if oil prices crash in the future, and could make them more likely to raise taxes — particularly on businesses, which could be more quickly taxed than individuals, Watson said.

”The fastest thing you can do to close a budget gap is to raise oil taxes,” he said. “There’s just more uncertainty around that type of investment.”

As if to reinforce that point, senators held a hearing Friday afternoon on a proposal to raise oil taxes from Anchorage Democratic Sen. Bill Wielechowski — a measure that had been languishing in committee for more than a year.

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That came as advocacy groups closely aligned with the oil industry, including the Alaska Chamber and the Keep Alaska Competitive coalition, sent letters to lawmakers urging them to reject the Senate budget and the dividend proposal it contains.

”The passage this week of a Senate operating budget far exceeds our likely recurring future revenues and poses a grave risk to Alaska’s economy,” said the coalition’s letter, signed by Lynden transportation chairman Jim Jansen and Joe Schierhorn, Northrim Bank’s chief executive. “Responsible fiscal leadership has never been more important if Alaska is to attract the investments needed to sustain our economic future.”

‘The dividend’s not the problem’

But one longtime dividend advocate, former oil and gas attorney Brad Keithley, said that the problem with the Senate’s proposed budget is not the dividend. The Permanent Fund, he argued, has already generated the necessary cash to pay the proposed PFD, which was set by a historical legal formula tied to investment returns.

The issue, he said, is that lawmakers are also proposing substantial spending increases in other areas, like the capital budget, the energy relief check and supplemental spending on the budget for the current fiscal year. Keithley said that if lawmakers want to boost spending, they should be creating new sources of revenue to pay for it — specifically, an income tax, which would have a smaller impact on middle income Alaskans than a cut to the dividend.

”The dividend’s not the problem — there is a designated revenue stream,” Keithley said. “The problem here is the top 20% don’t want to pay their way. And so they’re trying to find ways to continue to have all they want, in terms of government spending, but without stepping up to pay an equitable share of it.”

Iris Samuels reported from Juneau and Nathaniel Herz reported from Anchorage.

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Iris Samuels

Iris Samuels is a reporter for the Anchorage Daily News focusing on state politics. She previously covered Montana for The Associated Press and wrote for the Kodiak Daily Mirror. Contact her at isamuels@adn.com.

Nathaniel Herz

Nathaniel Herz is an Anchorage-based journalist and a former reporter for the Anchorage Daily News. He’s been a reporter in Alaska for nearly a decade, with stints at ADN and Alaska Public Media, and has written for FasterSkier.com, The Washington Post and others. Read his newsletter, Northern Journal, at natherz.substack.com

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