The $3,000 PFD survives in Senate budget, but future of the dividend remains uncertain

The Senate passed the operating budget on a 19-1 vote Wednesday containing a $3,000 dividend for this year while rejecting many of the big cuts proposed by Gov. Michael J. Dunleavy.

The floor debate on the bill was generally uneventful, at least compared to the rambunctious multi-day House process that saw the introduction of more than 60 amendments. Unlike the House budget, however, the Senate budget is not fully balanced and would require the state to dip into savings to cover its spending.

The Senate’s budget process did get high marks from both the majority and minority members. Breaking from tradition, Minority Democrats were given the opportunity to oversee the formulation of some portions of the state budget. All but one Democrat—Juneau Sen. Jesse Kiehl, who said he couldn’t support an unbalanced budget—voted in support of the budget.

The Senate saw a grand total of 25 amendments, approving three.

The chamber rejected a variety of minority Democrat amendments ranging from a partial repeal of the per-barrel oil tax credit, a partial restoration of the Alaska Marine Highway System, additional prosecutors and additional funding to partner with a federal task force to proactively go after child pornographers. Nearly all failed along caucus lines.

The three approved amendments included an additional $800,000 for the Senior Benefits Program to avoid a repeat of this year where funding for the program ran out early and more than 4,000 seniors were cut off for the final two months of the fiscal year. The second amendment added intent language directing the administration to distribute $20 million in K-12 funding that’s become the subject of a new lawsuit after the administration has delayed paying it out.

The final amendment was a clean-up for a change missed in the subcommittee process.

The PFD

The largest margin of defeat was saved for an amendment that would have reduced the dividend.

Sen. Chris Birch, R-Anchorage, proposed an amendment that would cut the dividend from $3,000 to $1,200. He said the state couldn’t afford the $1.9 billion budget line for the payouts.

“A $1,200 PFD is one the state can afford. A $1,200 dividend allows us to fund core state programs at sensibly reduced programs,” he said, arguing that the Legislature has done a lot in recent years to put the state’s finances in order. “A $3,000 dividend would take us directly off that course. … We can’t afford a $3,000 dividend. In order to pay a $3,000 dividend, our options are simple. We would have to cut a billion-plus dollars from the budget, and while I support continued downward pressure on the budget, I think we need to take a sensible, managed, multi-year approach so we don’t send the state’s economy into a tailspin. Or we would have to raise new revenues, and it doesn’t make sense to tax Alaskans with one hand just to turn around and hand out a dividend with the other hand. Or we would have to dip into our reserves.”

Birch only found opposition in the floor debate, with many members arguing in favor of the statutory amount of the dividend or that upcoming legislation to tackle the size of the dividend was a more proper place for that discussion.

Ultimately the proposed amendment failed 17-3. Birch found support from Sens. Natasha von Imhof, R-Anchorage, and Jesse Kiehl, D-Juneau.

The Senate is expected to take up Senate Bill 103 tomorrow. That legislation would reset the size of the PFD to half of the percent of market value draw from the Alaska Permanent Fund created by last year’s Legislature. The bill wouldn’t go into effect until the 2020 dividend, but projections would set it at a stable $1,200 with some moderate growth in future years.

Another debate delayed

Sen. Peter Micciche, R-Soldotna, offered an amendment that would have reduced the Senate’s proposed transfer of $12 billion from the Alaska Permanent Fund’s spendable earnings reserve account to the constitutionally protected principle of the Alaska Permanent Fund.

The move would take the possibility of spending down that money through unstructured draws off the table, but as Micciche pointed out on Wednesday reducing the account too much could put the state in a bad bind if an emergency or bad market conditions take place.

“I’m very concerned with that transfer,” he said, noting that the $12 billion transfer could drive the account down below $2 billion. “That’s a very dangerous number and that’s without a drop in oil prices. … My concern is that would jeopardize the PFD and require immediate taxes”

The account itself fills every year and has traditionally paid for dividends. Action by the Legislature last year made it formally available for funding state government for the first time.

Micciche’s amendment would have lowered the amount to $9 billion, which he said would be expected to leave about $5 billion in the state’s reserves.

He ultimately withdrew the amendment, however, as he said he believes the issue will be taken up in the conference committee with the House.

Sen. Bert Stedman, the Sitka Republican co-chair of the Senate Finance Committee, also acknowledged that the figure for the transfer is still up in the air. He also noted that the transfer wouldn’t take place until the end of the June 2020, giving the Legislature plenty of time to change its mind.

What’s next

The budget now heads back to the House for concurrence, which is traditionally rejected in order to send the bill to a conference committee.

In the conference committee, the House and Senate negotiators can decide on either taking the House number, the Senate number or somewhere in between. They can’t add new money that wasn’t in either budget or reduce it below the numbers produced by either chamber.

It’s likely there that the size of the dividend, the permanent fund transfer and a multitude of other issues like funding for ferries, health care, public safety and the university will be hashed out.