For moments on Wednesday, the Legislature almost felt like the traditional end-of-session sprint as the House churned through bills ranging from electronic bikes and raw milk to board extensions and other revisions to state law. But then there was the Senate that spent much of the day meeting behind closed doors ahead of what would be an incredibly contentious and consequential vote on the dividend and Alaska Permanent Fund.
In a pair of late-night votes, the Senate voted to approve both a roughly $2,300 dividend as well as a $1.5 billion overdraw on the Alaska Permanent Fund that fund managers and some legislators have warned could undermine the fund’s performance in future years, which would worsen the state’s financial crisis and make whatever eventual solution need to be that much more severe.
The dividend and the overdraw, however, are far from final because the operating budget is already headed to negotiations with the House where it could change dramatically. Both chambers stood by their versions of the budget in the final minutes of the regular session, appointing a conference committee with Sens. Bert Stedman, Click Bishop and Donny Olson and Reps. Kelly Merrick, Neal Foster and Steve Thompson. Without agreement on the budget, the Legislature opened into a special session this morning.
Stedman, the Sitka Republican who co-chair of the Senate Finance Committee, has been a particularly vocal critic of overspending the fund, frequently warning that it will directly harm future generations of Alaskans. Echoing some Anchorage Republicans, he said in the debate that he couldn’t stomach a future where Alaskans would be paying an income tax while also receiving the dividend. Anchorage Sen. Natasha von Imhof, D-Anchorage, called it a raid on the fund that would leave less money for future years.
Sen. Mike Shower, the Wasilla Republican who pitched the dividend amendment on the floor, said it was a way to force the Legislature into action. He argued that the budget could be balanced with a moderate increase to oil taxes and a 2.5% sales tax, which critics noted was based on rosy projections for state oil income. Shower conceded that his proposal had not been rigorously evaluated and was based on a “what happens if everything goes reasonably well,” but said it’s a starting point.
“These charts are nothing more than something to look at. It gives us data, we can tweak the dials any way we want. We can add more oil taxes to it, do no tax, all kinds of stuff,” he said. “We need to take our time, maybe we can start that tomorrow or the next special session (in August).”
Though his pitch focused in on a sales tax, Shower said that whatever approach the state uses to balance its budget should be equitable, arguing that cuts to the dividend have put the largest burden on the poor and working class to close the state’s deficit.
Sen. Bill Wielechowski, an Anchorage Democrat who proposed a full statutory dividend of $3,400 (which failed 10-10), argued that the focus should be on the oil industry as they look at new solutions. Wielechowski has long been an advocate for the higher taxes on the industry and was an early opponent to dividend cuts. He said he wanted people to know why cuts are on the table in the first place.
“There is one reason they’re not getting their full dividend that because we’ve allowed the industry, the oil industry, to back their trucks up to the state treasury and just cart away as much as they can. We tried to fix and what did the industry do?” he asked, referencing the 2020 voter initiative to raise oil taxes. “They spent tens of millions of dollars saying, ‘Vote no on one, save the PFD.’ We’re saving the PFD here.”
Sen. Lyman Hoffman, D-Bethel, said he supported a larger dividend, but couldn’t support the spending without resolution to the state’s structural deficit. He said paying a dividend was the easy way out that would make it that much easier for legislators to overspend without making tough decisions in the future.
“Each time, I hear we’re going to take it up, we’re going to fix the problem,” he said. “We haven’t fixed the problem yet, and until we do, we will continue to kick that can down the road.”
Why it matters: The vote is a significant turning point in Alaska’s political battle over the dividend. The Legislature has so far favored deeper cuts to the dividend while maintaining status quo spending on government services and opposing any form of significant new revenue. That’s been a position largely favored by Republicans from wealthier districts–who note that the budget can balance without new taxes or new cuts if only the dividend was deleted–as Democrats have generally favored an increase in taxes and conservative Republicans have favored deeper cuts to state services. A handful of key defeats in last year’s elections have shifted things towards the PFD with the election of more pro-PFD Republicans and pro-PFD Democrats.
The bigger picture: The payment of a larger dividend combined with the overdraw of the Alaska Permanent Fund makes it harder for legislators to keep kicking the can down the road because there will be that much less road. Without resolution to the state’s structural deficit, the state has burnt through its traditional savings account and is now left with the earnings reserve account Alaska Permanent Fund. This overdraw would mark the first overdraw of the fund, breaking the spending limit that legislators hoped would take the fund sustainable, and likely not the last as long as the fight between the dividend, taxes and services remains unresolved. Depleting that fund, which some have noted is possible given the fund’s reliance on the potentially volatile investment and real estate markets, would leave no available money for either the dividend or state services.
What’s next: As explained above, though, things are far from settled as the budget and dividend now enter negotiations between the Senate and the House, which passed a budget without a dividend or an overdraw from the Alaska Permanent Fund. The final number on each could land somewhere between the Senate’s figure and the zero approved by the House. It’s important to note that under a governor’s special session order legislators are limited on what they can work on. The current call, which can be amended by the governor, currently only includes the budget, the capital budget and a proposed constitutional amendment that would add the dividend, at the same rate as proposed by Shower’s amendment, to the Alaska Constitution. Legislators would need Dunleavy’s approval to pass broader measures during this session. They will, however, have an opportunity to consider revenue measures at the August special session, though the governor has insisted that any new revenues be approved by both the Legislature and the voters.
There’s one other quote from the evening that I think is significant. During Senator Hoffman’s floor comments, he said this (at https://www.ktoo.org/gavel/video/?clientID=2147483647&eventID=2021051201&startStreamAt=16460&stopStreamAt=16550):
“Going back to people’s reference to … I don’t want to tax somebody to turn around and give it out as a dividend, I don’t believe that to be the case. As was stated by several people before me, the letter of intent that Sen. Adams put into that bill setting up the Permanent Fund Dividend … [said the Permanent Fund Dividend] is the first call.
“So if the dividend, whatever that amount is, is placed into an operating budget, and what is spent on government, is placed into that budget, the first call is for the dividend. The ad hoc draw is for government, to fund government. And if we are going to have to tax people, its not taxing people to give them a bigger dividend check, because they receive the first call. Its taxing people to the level of government we are voting on in this budget.”
I believe the people of Alaska should get the full amount of the PFD!! It’s only fair.. We need the money!!!!!! I know I do….