By opposing taxes, Dunleavy preserves the status quo and puts the PFD in peril

Gov. Mike Dunleavy. (Photo by Governor's Office/Flickr)

The most notable takeaway from Gov. Mike Dunleavy’s interview last week with Alaska Public Media about his plans to seek re-election was his re-upping of his demand that any and all taxes be approved by both the voters and the Legislature.

It was a notable shift because just days earlier Department of Revenue Commissioner Lucinda Mahoney told the legislators in charge of charting a new fiscal course for the state—one that many hope will include guarantees of a larger dividend—that the governor would support a sales tax if it’s approved by the Legislature. While a sales tax is far from the most equitable solution to the state’s financial woes, it was a glimmer of hope that the state could finally reach a solution that pays out a larger dividend while also balancing the books.

That glimmer has been snuffed out just as legislators are set to return to the third special session of the year, one called by Dunleavy to consider his constitutional amendments setting a strict spending limit on state government while dedicating half of the state’s spendable investment income to the dividend (a move that would leave $800 million deficits) as well as new revenue.

As it stands, this year’s dividend is at $0 for the first time ever following the governor’s decision to veto $525 figure that was ultimately approved by the Legislature (it could be $1,100 if Dunleavy-aligned Republicans ultimately support the Constitutional Budget Reserve vote). There’s not even a bill to pay out a dividend currently before the Legislature, which Dunleavy says will come only after the Legislature takes up the items on his original call.

By refusing to seriously consider new revenues, that leaves the Legislature with no other way to balance the budget in the near term under Dunleavy’s proposal than to make big overdraws on the Alaska Permanent Fund. While legislators came close to considering such a move during the session, it was ultimately nixed by legislators who want a more conservative approach to the state’s finances.

If this all feels like we’re debating in circles, it’s because we are. While there are staunch supporters of the larger PFD, the defenders of the Alaska Permanent Fund itself are just as fierce in their refusal to overdraw the fund and undermine its future returns. The Legislature has convened a working group with the task of bridging these viewpoints but we’ve yet to see the product of that group. Barring a revelation, the underlying debate over the state’s budget, the purpose of the PFD and the fight over new revenues hasn’t changed much in the last eight months.

And, critically, still unanswered is the most important question: Who Pays?

Under the status quo, it’s been the dividend that’s paid. With little appetite for additional cuts to state services and, so far, no appetite for new revenues, the state’s deficit has fallen on cuts to the dividend, what has proven to be the path of least resistance. And as some of those budget conservatives are keen to point out, the state’s budget will balance without any new cuts or any new taxes if the dividend is kept small. That means if the state wants to pay out anything but the most meager of dividends, it’ll require a break from the status quo in the form of deep cuts (again, little appetite) or new revenue.

It’s a reality that even the most conservative members of the Legislature seem to finally understand (thanks to that working group), which is why we’ve seen the increased talk about the sales tax. Regardless of how we frame the PFD in the state budget, they acknowledge we’ve gotta figure out how to pay for it one way or another.

But instead of supporting the Republican legislators who’ve come to the table with proposals for new revenue, a starting point at least, Gov. Dunleavy’s refusal to consider new revenues without first implementing sweeping changes to how government works (none of which actually help close the deficit) means that the status quo is likely to live on.

Without significant changes to the state’s budget, cuts to the dividend will continue to be the path of least resistance when it comes to balancing the budget. The status quo, which is nearly ensured by Dunleavy’s cutting off the Legislature’s attempts to figure out who pays, means the dividend will continue to pay and, given all the brinksmanship heading into this session, it may very well end up at $0 for the first time ever.

Dunleavy and his allies are betting big that their pressure campaign will finally force the Legislature’s conservative budgeters to bow and turn on the spigot on the Alaska Permanent Fund, a move that those fiscal conservatives—some of whom look down on the PFD as “free money”—have shown no indication of actually supporting at any point in this budget process.

Dunleavy’s decision to veto the PFD was a gamble with every eligible Alaskans’ $525 payment that something big will have changed since the Legislature passed its budget in late June.

So far, it’s not looking good.

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