Legislature’s bipartisan baby steps run into instant gratification problem

A reenactment of the infamous "marshmallow study" that originally suggested self-control was an innate ability that would predict success later in life, but that a later study found was also deeply impacted by a child's environment. Photo by J. Adam Fenster / University of Rochester.

On the heels of the working group, the Legislature is taking some bipartisan baby steps as they start to work through the compromise on the state’s long-term fiscal plan in broad strokes. It’s not been an easy process and hasn’t produced many specifics so far, but it has produced some significant concessions from each side.

Far-right Republicans have agreed that new revenue is needed (which is why sales tax talks have gained the most steam in the last few months) and the Alaska House Majority has signaled it’s willing to overdraw the Alaska Permanent Fund IF it’s part of a comprehensive and balanced plan.

The pieces are starting to come into shape for a long-awaited resolution—one that minimizes cuts, grows the dividend beyond recent years and enacts broad-based new revenues—but there’s still a wide gulf between what the working group has produced and actual enacted legislation and approved constitutional amendments.

And one of the key differences left unresolved by the working group is the timing of things. Namely, should we start paying out bigger PFDs before or after the state can close the deficit without dipping into savings? The working group’s final report recognizes this difference, laying out the two options:

  • One-time transfer (in excess of the annual POMV draw) from the Permanent Fund’s earnings reserve account to the constitutional or statutory budget reserve, to “bridge” budget deficits through the first few fiscal years after adoption of a comprehensive solution.
  • A PFD “stairstep” that starts with a more modest PFD and steps up to the full PFD amount as provided under the new POMV-based PFD formula through the first fiscal years after adoption of a comprehensive solution.

It’s that part of the working group’s fiscal plan that will be tested almost immediately. That’s because the clock’s fast ticking away for the Legislature to approve a new budget bill. If a budget isn’t enacted by Sept. 1, Alaska’s medical school students participating in the WWAMI program will see their tuition spike from the palatable in-state tuition afforded by the program to costly out-of-state tuition (we’re talking about a difference of about $40,000 a year), thousands of students who qualify for the Alaska Performance Scholarship will be similarly affected and, of course, the annual dividend payment might be delayed.

So, should that payment be in the “affordable” range of $1,000 to $1,500 or should the state, having the very rough outlines of a sustainable budget laid out in a non-binding working group’s report, start to pay out a bigger dividend?

We should treat ourselves, argues Gov. Mike Dunleavy.

After stubbornly waiting through most of last week to actually introduce a budget bill, the governor is now pushing for $3 billion in overspending from the Alaska Permanent Fund with a little more than half going to pay out a $2,350 dividend and the other half to be socked away for next year (likely to pay out another large dividend conveniently right before the 2022 election). Legislators’ skepticism with the approach was clear during last Friday’s hearing in front of the House Finance Committee, where members said it looked like the governor was getting ahead of the Legislature. Where’s the revenues, they asked? Where’s the rest of the fiscal plan?

Rep. Bart LeBon decried the plan to overspend for the dividend as “immediate gratification.” The plan isn’t finished. It’s not even drafted at this point. Overdrawing the Alaska Permanent Fund, LeBon argues, would put the long-term health of the fund at risk.

“Of course, the immediate gratification and reward for overdrawing the earnings reserve, folks would argue that now’s the time to do it and we have money in the fund to do it,” he said. “I’m just pointing out a public purpose endowment rarely takes this kind of action and tries its very best to avoid it for long-term generational reasons.”

The comments about “immediate gratification” are particularly on point. The pieces that may lead to legislators to approving a larger dividend are on the table, but it’s going to take time—and compromise—to put them together. And that’s time—and a capacity for compromise—that Dunleavy doesn’t appear to have.

This budget bill marks one of Gov. Dunleavy’s very last opportunities to finally deliver on that big dividend that was the crux of his 2018 campaign. And in making this push that’s so detached from the political reality, it’s becoming increasingly clear that the $3 billion overdraw, which the governor’s administration has claimed will only be a one-time bridge to when the rest of the plan pencils out, is almost entirely in service of paying out two large dividends ahead of the 2022 election. As many have pointed out now, it’s a $3 billion bridge to nowhere.

It’s like saying, “Hey, I just downloaded this budget app, so let’s splurge on a vacation!”

The overspend—on its own—does not move the state one inch closer to a sound fiscal plan. Larger dividends are the goal of a balanced fiscal plan, they are not the building blocks of that plan.

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