The rollout of Gov. Mike Dunleavy’s flat-funded, big-PFD-paying budget on Wednesday had few details and fewer answers—like how they realistically plan to pay for it—but one thing was for sure: Dunleavy sure would like the Legislature to put a trio of constitutional amendments up on next year’s ballot.
The amendments, which were introduced this year and received little legislative attention, would place strict limits on state spending, make it nearly impossible to pass new taxes and enshrine the permanent fund dividend as a guaranteed payment. If passed, financial analysts say they would greatly limit the state’s options to pay for the budget.
Before he ducked out of the news conference early, Dunleavy stressed that the public should have input on how the budget is put together and how it’s funded. He said that includes sounding off on the three amendments.
“The people of Alaska should be part of forming this budget and our sustainable fiscal plan with us, with the Legislature and with the governor. I’m asking the Legislature to give due consideration to the constitutional amendments that we introduced last year,” he said. “I believe if they are sent to the people of Alaska that the people of Alaska will vote on those in the positive. … I think it’s the people of Alaska that will lead us out of deficit spending and into a balanced budget for the future.”
The amendment proposing a strict spending limit on state government has received the most attention from the Legislature, but leaders have said that they would consider loosening it if they were to send it to a vote. Alaska already has a constitutional spending limit on the books, but it is so lenient that it hasn’t come into consideration in recent years.
The PFD amendment would put the historical PFD formula, the one that hasn’t been followed since 2015 in the wake of slumping oil tax revenue, into the constitution.
The tax amendment would require that any taxes passed by the Legislature or by voter initiative must be approved by the other. The model is inspired by Colorado’s Taxpayer Bill of Rights and has been endorsed by the right-wing Americans for Prosperity, which footed the bill for Dunleavy’s budget road show this spring.
Where Dunleavy’s proposal differs significantly is the requirement for the Alaska Legislature to approve any taxes created by voter initiative. In hearings this year, the administration said that the amendment would specifically require the Legislature to pass legislation approving the tax. The Legislature could simply refuse to take up any legislation or votes in order to kill a voter-approved tax.
None of the amendments received significant attention during the legislative session, dismissed by legislators as overly restrictive or, in the case of the tax amendment, severely undermining of the Legislature’s role as well as the public initiative process.
Though the governor has framed the amendments as a solution to the state’s fiscal crisis, fiscal analysts at Fitch issued a warning on Tuesday that such amendments would put the pinch on the state’s finances and would likely harm the state’s credit rating.
“Alaska will face key questions on gubernatorial proposals, which may weaken operating flexibility. Fitch expects the governor will continue to seek a full dividend payment for residents and legislative approval for a set of constitutional amendments, constraining operating flexibility,” explained the report, which came as part of the ratings agency’s outlook for the upcoming year.
The credit rating agency has already downgraded Alaska’s bond rating in response to the ongoing budget issues, with the latest downgrade being issued in September lowering the state from AA to AA-. The highest rating is AAA, which Alaska had as recently as spring 2016.
“The legislature will continue to discuss constitutional amendments the governor proposed earlier this year, which, if enacted, could weaken the state’s budgetary operating flexibility and negatively affect Alaska’s (credit rating).”
The amendment process
Any amendment faces a long shot in the Alaska Legislature.
The Alaska Constitution requires proposed changes be approved by a two-third vote of each chamber before it can be put to voters. That’s a 27-vote threshold in the House and a 14-vote threshold in the Senate.
Why it matters
On a day where the governor had few solid answers or direction for Alaska’s financial situation, his re-upping of the constitutional amendments is notable. It means they will likely become the new focal point for the administration at its upcoming budget town halls, which are slated to start sometime in January.
They were a focal point of the Americans for Prosperity-funded road show this year.
The warnings from Fitch are not likely to make any legislators change their mind about the proposals, at least for how they currently stand. It’s possible that the Legislature could amend the proposals or put forward their own versions, but it’s a big ask with little benefit for the Legislature.