One of the many takeaways from Gov. Mike Dunleavy’s rollout of his proposed budget is the surprising lack of cuts.
In many ways, it’s an acknowledgement that Alaska has hit the limits of what is politically feasible to cut—a relief to many who feared a repeat of the draconian cuts offered this year—but Dunleavy has provided no leadership in what’s next.
And it’s in that vacuum of direction that the Legislature is most likely to continue with what it has done since 2016: Cut the PFD to preserve savings and balance the budget.
Dunleavy’s asking for a fully funded dividend as well as a payback of what was cut from last year’s dividend but has presented no solution other than $1.5 billion-plus in deficit spending from the state’s nearly depleted savings account. Instead, he’s framed the budget as a “springboard” for discussion with Alaskans about what they want Alaska to look like and how they want to pay for it.
Officials in the administration, filling in after the governor’s hasty departure from the news conference, said that ultimately any and all sources of new revenue will be on the table if the Legislature decides to push ahead with them. Other than a loose plan to hold town halls, the governor does not plan to introduce his own proposals for revenue.
That means the decision will be left to the Legislature to come up with a plan and if recent years are anything to go by, then expect the PFD to be cut long before any new revenues are even considered.
Many legislators have already made it clear that they don’t support taxes in order to preserve the full dividend. Sen. Natasha von Imhof, the Republican co-chair of the Senate Finance Committee, said in April that “I have issues with paying taxes to pay a dividend.”
It doesn’t look like there’s been much movement since then.
In an interview with the Anchorage Daily News, von Imhof raised concerns about how the governor’s plan would draw the Constitutional Budget Reserve down to $500 million, calling the plan “very risky.”
Even some of the Legislature’s most ardent advocates of a full dividend told the ADN on Wednesday that it would be a tough task to pay out a full dividend without a long-term plan to pay for it.
“Based on meetings that I have been to, I think that is going to be a heavy lift,” Rep. Cathy Tilton, R-Wasilla, told the paper.
House Majority Leader Rep. Chris Tuck, D-Anchorage, added that even a $1,600 dividend could be a tough ask in the current climate.
The governor is proposing a full dividend, estimated to be nearly $3,200, as well as a payback of the 2019 dividend amounting to an additional $1,400. The total spend for the dividend would come to $2.8 billion: $2 billion for next year’s PFD and $800 million for the repayment. That would require a $1.5 billion withdrawal from the Constitutional Budget Reserve to balance next year’s budget, leaving an estimated $500 million in it, as well as a roughly $800 million withdrawal from the Permanent Fund Earnings Reserve account to cover the PFD payback.
That plan is likely be met with pushback from legislators because it asks them to draw down savings and ignore the spending limits they put on the Permanent Fund Earnings Reserve account, known as the percent of market value (POMV) draw, in 2018.
It’s a move the Permanent Fund Corporation’s board has warned against, arguing that spending limits are needed to keep the account healthy.
Cutting the next year’s dividend in half to $1,600 would shrink the draw on savings by $1 billion, and it’s not hard to see a majority of the Legislature take that route, the same as they’ve done since 2016, before even entertaining new taxes.
Still, that doesn’t mean there hasn’t been and won’t be a push for taxes because, make no mistake, cuts to the dividend are by far the least equitable way to solve Alaska’s budget crisis.
Rep. Tuck made this point during last year’s budget discussions, arguing that prioritizing cuts to the dividend means the poorest Alaskans will end up giving a larger overall chunk of their income to solving the deficit than wealthy Alaskans.
“It seems to be here in America and now here in Alaska that whenever government gets themselves in a fiscal mess it is the working person–it is the lower-income families–that have to bear the burden and bear the grunt of fixing the situation,” he said during budget debates this year. “It’s unfair for my two-and-a-half-year-old daughter to be paying the same tax as my multi-millionaire friend and as my fixed-income mother.”
If the Legislature does pursue taxes, it’s supremely unlikely that it would do so while paying a $3,200 dividend with a $2 billion price tag for the state. A reduced dividend would go a long way to protecting what’s left of the state’s savings and limiting unpopular cuts.
But, then again, so would new revenue.