Budget negotiators settle on $1,100 PFD with plenty of strings attached

Legislators on the budget conference committee meet to close out the budget on Sunday, June 13, 2021.

The Legislature’s budget negotiators wrapped up its work on the budget Sunday night with the group reaching what one member called an “ingenious” solution to the dividend.

The plan scrapes together funding from the general fund, the statutory budget reserve and, critically, from the constitutional budget reserve to pay a $1,100 dividend, but comes with plenty of strings attached that are aimed at forcing on-the-fence legislators to support a bevy of actions on the budget.

That inclusion of the constitutional budget reserve is particularly important because it requires a three-quarter vote in both the House and Senate to approve. Without it, the dividend would be reduced to $525, about a dozen capital projects would be scrapped and several other programs would see their funding erased. Tying everything together is designed to extricate the three-quarter vote, which would also enable the reverse sweep that has proved increasingly tricky to get from far-right Republicans.

In year’s past, those Republicans’ refusal to sign off on the vote has led to the abrupt end of college scholarships promised to Alaska high school students and the power cost equalization program. Along with the power cost equalization program and the college scholarships getting sidelined, so would about 63% of school bond debt reimbursement, $114 million in oil tax credits (which is all of them) and 11 capital project items that just so happen to be largely focused in the Mat-Su.

The message is pretty clear here: It’s a $1,110 dividend or consequences.

But whether that’s enough to get the Legislature through today’s impasse so they can continue to fight over the dividend and how to pay for government another time isn’t entirely clear.

What is clear is that there’s little appetite for overdrawing the Alaska Permanent Fund, which was cited by Sitka Republican Sen. Bert Stedman and Fairbanks Republican Rep. Bart LeBon in their support for the motion. In rough numbers, every $1 billion taken from the fund results in $50 million less in spendable investment income every year forever thereby making future deficits that much larger. The Senate had approved a $2,300 dividend but it would have required overdrawing the account by about $1 billion.

LeBon said protection of the fund should be of utmost importance and that the dividend fight should be resolved sooner than later.

“The protection fo the permanent fund is a high priority in my thinking and this accomplishes that,” he said. “All taken together this is a reasonable effort to achieve a good PFD amount. If you look at the average of the program over many years, it’s about $1,100 give or take. We’re heading toward the average PFD amount. It’s going to require us here in the Legislature to develop a long-term PFD formula. I think it is time for us to do that and we have several different bills being proposed to do that, and it needs to be our intention before the 32nd legislature has completed its work.” 

This $1,100 PFD approach would not require an overdraw from the Alaska Permanent Fund, but it would run the state’s cash reserves down to about the minimum $500 million that the state says is needed to manage cashflow throughout the year.

The plan ran into opposition from the committee’s two Democrats, who both represent rural communities. Nome Rep. Neal Foster and Golovin Sen. Donny Olson both said they opposed the action because they support a larger PFD. 

“If there was ever a time to pay a full PFD, that time is now,” Foster said.

Olson called the $1,100 PFD a “disservice to the economy of the state of Alaska,” but later conceded that the plan pulling together the money was clever. 

“I just want to congratulate the maker of the amendment for putting a fair amount of thought into it,” he said. “I never thought there would be a way to get around it, but it’s a very ingenious way to combine the CBR, the SBR and general funds to try to make it happen.”  

Why it matters: With the special session expiring on Friday and the start of the next fiscal year a mere two-and-a-half weeks away, this is the bid to get things done and wrapped up with the budget. Though there’s been some serious and interesting discussions about the future of the PFD—which have largely focused on whether or not the state wants to raise taxes in service of paying for a dividend/filling the hole left by paying out a dividend (there’s been very little interest in the governor’s plan that relies on cuts no one thinks are realistically achievable)—the Legislature is limited in what it can accomplish during this special session. Yes, there’s not a lot of room in here for equity in how the state pays for government but, also, there’s not a heckuva lot of time left on the clock. 

The consequences of failing to approve the three-quarter vote on the Constitutional Budget Reserve will be harsh and felt widely through the state. That’s because the vote contains the reverse sweep, a procedural vote that essentially puts back funds that would be automatically swept into the Constitutional Budget Reserve under the rules of the Alaska Constitution (it takes a 3/4 vote of each chamber to tap the reserve (under most circumstances)). Without it, funds for several programs would be drained, leaving the programs dead in the water. Last time this happened, letters went out to the families of high school students and recipients of the Power Cost Equalization program in early July informing them that they wouldn’t be receiving what the state had promised. It created a lot of political pressure that helped see the sweep eventually restored. It might not be as winning of an argument this time around as far-right Republicans have spent much of the intervening years building the case that the programs ought to compete against everything else in the budget for general fund dollars (or perhaps be eliminated altogether).

What’s next: The budget report needs to sit on legislators’ desks for at least 24 hours to give them an idea of what they’re voting on. That means Tuesday ought to be the day. 

Consequences

The Legislative Finance Division created a rundown of what will happen if the Legislature refuses to pass the three-quarter vote for the Constitutional Budget Reserve. Can you spot the common theme? 

Yep, that sure is a lot of Mat-Su capital projects.

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