The Legislature moves to lock up $10.5 billion as special session nears its end

Sen. Bert Stedman discusses the operating budget on May 1, 2019. As the co-chair of the Senate Finance Committee, Stedman introduced a bill that would split the PFD from the budget. It ultimately lost his support once it was upped to $3,000. (Photo by Alaska Senate Majority/Flickr)

With less than a week until the end of the special session, the Legislature had a somewhat eventful weekend when the operating budget finally advanced out of the conference committee where it had been stuck since May 15.

The committee opted to remove the dividend, which had been the major sticking point for the split Senate, from the budget altogether while also approving transfers that would move $10.5 billion into the constitutionally protected corpus of the Alaska Permanent Fund.

The move would put more than half of the $19 billion earnings reserve account out of reach of the Legislature effectively forever. The money would require a vote of the people to be spent.

Most of the move comes from a straight cash transfer from the earnings reserve account while some also comes from oil royalty payments that should have been deposited in the Alaska Permanent Fund, explained Senate Finance Committee co-chair Sen. Bert Stedman, R-Sitka.

There were few other changes in the budget that was approved Saturday. The committee approved a $44 million cut to the Alaska Marine Highway System requiring a significant rework of service but not a complete shutdown as proposed by the governor, a $5 million cut to the University of Alaska and 100 percent of the school bond debt reimbursement money needed to avoid some local property tax hikes.

“I’d like to make a motion that we adjourn, proudly, with roughly $10.5 billion heading to the corpus of the Alaska Permanent Fund,” Stedman said. “It’s a historic night.”

The transfer to the Alaska Permanent Fund has been considered by the Legislature since about mid-session as a way to basically prevent future Legislatures from spending it down (which is more or less what the Legislature could do this year).

There’s been some debate about how big of a transfer is appropriate in order to balance that priority against the chance that a market downturn could deplete the account. The Senate had initially proposed a $12 billion figure while the House had considered something closer to $8 billion.

Stedman, who’s opposed a $3,000 dividend out of concern what it would do for the future of the account, called the new number a compromise.

The budget was approved by the House on a 22-15 vote on Sunday. The Senate is expected to follow suit today when it returns for a 11 a.m. floor session.

The PFD and the three-quarter vote

Though the Legislature is another step closer to passing a budget and averting the looming July 1 government shutdown, it still hasn’t found resolution for the size of the dividend.

Before the Senate approves the operating budget today, it’s expected that it will pass its own PFD legislation that would pay out a $3,000 PFD according to the historical formula at a total cost to the state of about $1.9 billion.

It’s unclear how the Legislature would pay for such a move.

The current operating budget is expected to only have about $700 million in surplus in it after cuts to the operating budget were blunted by more than $40 million in new spending expected under a sweeping crime bill passed by the Legislature. The total cuts this year are expected to be in the neighborhood of about $140 million.

The full PFD would require the Legislature approve a supplemental draw from the earnings reserve account of the Alaska Permanent Fund, which would already be breaking the spending rules the Legislature set for the account last year. This is the source of worry for legislators like Stedman, who say such additional spends endanger the future of the account.

The Legislature could also potentially fund the dividend with a draw out of the Constitutional Budget Reserve, which has been nearly drained since the downturn in oil prices wrecked the state’s finances but has enough to cover the full dividend. Such a move would require a three-quarter vote in both chambers, requiring the support of each chambers’ minority members.

A three-quarter vote is also needed for other technical portions of the budget so there could be a chance that these issues are all tied together in a vehicle like one of the PFD bills or the capital budget bill.

Still, it’s not entirely clear where the House is planning to go with the dividend. So far, its membership has been resolutely against approving a $3,000 dividend and its financial implications. It’s been generally understood that the chamber had support for a roughly $1,600 dividend. The House also passed a resolution to create a working group to come up with policy recommendations for the Alaska Permanent Fund. The resolution now heads to the Senate for approval.

What’s also unclear is just what Gov. Michael J. Dunleavy would do with a budget bill that doesn’t some with a dividend. If the Legislature hopes to save the debate for another day, he could veto the budget entirely and set the state on the course for an all but guaranteed shutdown.

The House has both its own PFD legislation and the capital budget on its daily floor calendar, but both bills are still in the House Finance Committee. The committee is scheduled to meet sometime today.

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