The Legislature’s fiscal policy working group released its recommendations for the state’s financial future on Monday, moments before the House and Senate gaveled into the third special session of the year.
The recommendations cover four pages that are largely light on specifics, but they represent the first meaningful bit of compromise on the state’s financial future as well as a balanced path to larger dividends. The plan calls for a combination of unspecified broad-based revenues and unspecified cuts to cover the budget gap created by the larger PFD as well as a slate of other changes aimed at stabilizing the state’s financial future.
Sen. Jesse Kiehl, a Juneau Democrat who served on the working group, called it “a strike zone” for a solution that the rest of the Legislature can work within to reach a durable solution to the fight over the dividend and budget. He said the negotiations across the vast political differences was tough, but that the group worked through them to something they all thought could get the votes.
“We stayed away from anybody’s future electoral prospects, we stuck to what it would take to fix Alaska’s fiscal problems and put our state on a sound footing for the future, what it would take to balance the budget, to stabilize state services and Alaska’s economy and to quit yanking the private sector around,” he said. “The fiscal policy working group recommendations are a package. There is no one of us that agrees to every single one of them—probably no one of us will vote for every single one of them as bills come through—but we ended up agreeing on that set of recommendations as something we thought could pass, would be acceptable to Alaskans and would get the job done.”
Importantly, the working group is proposing an all-in approach where legislators and the public understand the entire picture instead of getting caught up on the individual pieces. Per the conclusion of the report: “The (working group) believes the legislature must pass a comprehensive solution. Members do not support addressing only one or two issues to the exclusion of others. The working group believes addressing these issues as a comprehensive solution solves not only a fiscal challenge but a political challenge as well.”
Here’s the core principles of the plan:
- A constitutional amendment that would transform the Alaska Permanent Fund into a true endowment model where the entirety of the fund would be protected against overspending. It would also serve as a spending limit of sorts as it would make only the money available through the percent of market value approach available to spend.
- Constitutional certainty for the PFD. The group couldn’t agree whether or not to put the specific amount of the PFD in the constitution, but agreed that a PFD should be guaranteed.
- A new formula for the PFD that dedicates some portion of the Alaska Permanent Fund’s spendable investment income to it. The recommendation from the admittedly pro-PFD working group is to “work towards a 50%” formula.
- A “healthy” capital budget that would go beyond just the federal match we’ve seen in recent years. According to the plan, that’s about $60 million on top of the federal match to go to annual capital projects.
- New revenues to the tune of $500 million to $775 million a year. There’s no specificity as there’s a pretty strong split between income taxes and sales taxes, but the group recommends a “broad-based revenue measure” as well as others.
- Budget cuts with a big range of $25 million to $200 million over multiple years. No specifics here, either, but plenty of talk about improving efficiencies.
- A unanimous recommendation that a new spending limit be enacted.
- The group agrees that a transition period be in place. There’s a difference of opinion here with one side calling for an overdraw on the Alaska Permanent Fund (akin to Dunleavy’s call for $3 billion in bridge funds) while others are suggesting a stairstep for the PFD where it ratchets up as the other pieces of the budget plan come online.
- They’re calling for whatever plan to stand up to rigorous stress testing.
- Updates to the Constitutional Budget Reserve to “reform the function and purpose of the fund … including the possibility of eliminating the sweep.”
Why it matters: It’s more than I expected out of the group, which seemed to struggle mightily at times during the interim. And while we can all certainly quibble with the lack of specifics in the plan, specifically the lack of an answer to the eternal budgetary question of “Who Pays?” it’s frankly a lot more than we’ve seen in recent history. The question moving forward is, of course, how any of this becomes a reality especially given Gov. Dunleavy’s efforts to box in the Legislature’s decision-making. Another key thing to keep in mind is that the working group is generally more on the pro-PFD side of things than the rest of the Legislature is, so the plan is still going to be running into the “The PFD is just free money” crowd.
No way but my way
The release of the recommendations and the start of the special session came less than two hours after what was a remarkable news conference even by Gov. Dunleavy’s standards. With little leverage over the Legislature, the governor basically told the press that his administration has already figured everything out, that new revenues and deep cuts aren’t needed to pay out a large dividend and that also he’s very interested to see what the Legislature’s working group has come up with. Talk about getting out over your skis.
As the Legislature’s opposing factions are starting to finally hash out a solution that not only brings finality to the state’s interminable budget fight but seeks to pay out the larger dividends Dunleavy has staked his political career on, here was the governor cutting them off before they can really get started. It will be near-impossible for the Legislature to cobble together a balanced approach to the budget as long as the person with the loudest platform is still living off in his own fiscal fantasy where free cash can be doled out without pain elsewhere.
It’s also notable that the governor has yet to introduce the appropriations bill needed to actually pay out a dividend this year. Dunleavy says it’s because he wants the Legislature to first approve his constitutional amendments—something explicitly not supported by the legislative working group’s all-in approach—but it’s more likely that he’s concerned about losing control of the narrative as a budget bill would bring into focus his vetoes, the reverse sweep and even possibly the Legislature exacting retribution on the governor for vetoing their per diem.
The veto of the per diem featured heavily during this morning meeting of the Senate Finance Committee, where Anchorage Republican Sen. Natasha von Imhof noted that Dunleavy receives per diem as well.