House passes mostly unfunded capital budget after minority Republicans vote down funding

(Photo by House Majority Coalition)

With just days left in the special session, the House finally passed the capital budget on Wednesday afternoon. They weren’t, however, able to muster the votes to pay for most of it.

The minority Republicans refused to vote for the draw from the Constitutional Budget Reserve because they hadn’t gotten their way on an earlier vote to insert a $3,000 permanent fund dividend into the capital budget.

The Constitutional Budget Reserve requires a supermajority of 30 members in the House to tap into. With all minority Republicans withholding their votes over the failure to add the PFD into the bill, the CBR portions of the bill failed on a 23Y-13N vote.

The amendment to insert the $3,000 PFD failed on 21N-15Y vote.

The budget itself passed with broad support on a 31-5 vote.

The failure to approve the Constitutional Budget Reserve will create what Sen. Natasha von Imhof described in an interview with the Anchorage Daily News as a “shitshow” that pokes “up to $323 million in holes all over the budget.”

The biggest impact will be felt in the Department of Transportation where $915 million of federal highway funding could be in jeopardy because the state’s matching funds would have come out of the Constitutional Budget Reserve. An amendment by minority Republicans get out of the bind by changing the funding to state general fund dollars was soundly defeated.

The $10 million in grants that would go to constructing more drug addiction treatment facilities is also tied to the Constitutional Budget Reserve.

The failure to reach a three-quarter vote also introduces a new headache for legislators: The dreaded “sweep” that automatically transfers many different funds into the Constitutional Budget Reserve according to rules in the Alaska Constitution.

Typically, legislators vote to put that money immediately back in place.

Without it, though, there’s a lot of accounts that could be drained from the funds set aside for the compensation of crime victims and the Alaska Marine Highway. There’s concern, too, that the governor could sweep the Power Cost Equalization Fund, which is used to subsidize energy costs in high-cost parts of Alaska, and the Higher Education Investment Fund, which is used to pay for college scholarships.

The governor’s budget didn’t include language to reverse the sweep.

What’s next?

The budget now heads back to the Senate, where the appropriation bill originated from. The Senate doesn’t have an opportunity to alter the bill and would have to, instead, vote to either pass it or send it to a conference committee.

Not all funding for the budget comes from the Constitutional Budget Reserve. Some funding for deferred maintenance comes out of the general fund and other accounts come into play. Most of those accounts, however, could be affected by the sweep.

With just two days left in session, and the minority Republicans dug in, it’s all but impossible for there to be a resolution on the capital budget before the end of the session on Friday.

It’s likely that the capital budget would be revived in a second special session.

The PFD

With legislative leadership at an impasse over the dividend, the Legislature decided to punt on the dividend and separate it from the operating budget. They agreed to take up a dividend this summer.

Minority Republicans, ardent allies of Gov. Michael J. Dunleavy on paying out a $3,000 dividend, saw the capital budget as the last chance to force the issue before the end of the session and offered an amendment that would have pulled $1.9 billion out of the permanent fund to pay for it.

Minority Republicans mostly said they understood the need to change the formula for dividends, recognizing that the $1.9 billion payout isn’t sustainable when it dwarfs every other element of the budget. They said, however, that paying out one last massive dividend would somehow restore public trust in government.

“We need to make changes, but I also think that those changes need to be supported by the public or we’re going to be back here today,” said Minority Leader Rep. Lance Pruitt, R-Anchorage. “That’s the faith that we have to establish, that’s the trust we have to go back on.”

Majority Republicans and Democrats argued against the supersized dividend out of concern for the future of the state’s finances. They agreed with the value of the dividend but said it shouldn’t come at the expense of critical state services.

“I probably represent one of the most economically disadvantaged areas of the state that has some of the highest costs of living, some of the most limited economic opportunities,” said Rep. Tiffany Zulkosky, D-Bethel. “The Permament Fund Dividend in those areas of the state is critical, it’s essential, but so are state services like K-12 education, senior benefits and critical health and social services that protect life and limb of people who live in rural areas of the state, Power Cost Equalization.”

She said that the alternative that was put forward by the governor was deep cuts across the state to services that many on rural Alaska rely upon.

“We saw unprecedented budget cut proposals that would only meet a fraction of the resources need to pay a full statutory dividend,” she said. “These are cuts that would significally harm Alaskans’ quality of life across the state just to pay a one-time check. …These are cuts that don’t just cause harm, they compound harm.”

Many members noted that new revenue hasn’t truly been discussed this session with suggestions ranging from an income tax to reworking oil taxes.

The Legislature has been unable to come to any agreement on the PFD. Instead, it opted to launch a joint working group between the House and Senate to review the history and explore the future of the dividend. The group doesn’t have a timeline for when it needs to deliver its non-binding recommendations, but it held an organizational meeting Wednesday morning with plans to get underway in earnest on Thursday.

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