uld begin this week, the day after the current regular session of the Legislature is scheduled to end, if lawmakers are unable to finish work on the state budget for the fiscal year that starts July 1. He also called legislators back to work to consider his proposals for a much larger Permanent Fund dividend.
In addition, he announced a second special session, scheduled to begin Aug. 2, that would address his proposed constitutional spending limit, a constitutional ban on any new taxes without a public referendum, and spending of federal pandemic relief aid.
Both special sessions would be in Juneau.
The first special session is scheduled to begin Thursday, the day after the scheduled end of the regular session. The Legislature has struggled this year to complete its budget work after the House spent a month at the start of session deciding which members would be in charge of the chamber.
The introduction of more than $1 billion in additional federal pandemic relief aid added more spending decisions to this year’s legislative agenda, along with the annual battle over the size of the Permanent Fund dividend.
Dunleavy, in a prepared statement, said it was clear from talks with legislative leaders that more time would be needed to complete work on the budget.
About two-thirds of state general fund revenues come from the Permanent Fund, creating conflict between the need for public services provided in the budget and the want of a larger dividend for Alaskans. With North Slope crude production in decline, oil taxes and royalties provide only about 25% of state general fund revenues.
Under the governor’s proposal to split the annual draw of Permanent Fund earnings 50-50 between dividends and public services — generating a much larger PFD than in recent years — the state would face annual budget deficits of more than $1 billion in the years ahead. Dunleavy has offered no specific proposals for how to pay the bills, other than to mention maybe state-sanctioned gambling.
The governor told reporters he wants to address the deficit and would be open to “anything and everything that helps solve the problem,” though his proposed constitutional amendment to ban taxes without a statewide vote likely would push any new tax revenues into 2024.
Dunleavy’s proposed constitutional amendment on new taxes, such as a state sales tax or personal income tax, also would change state law to require a two-thirds legislative majority, instead of a simple majority, to raise the rate of any existing taxes. The provision would raise the bar significantly against any efforts to boost the state tax on oil production.
To cover state spending and larger dividends until any new revenue shows up, the governor has proposed withdrawing an additional $3 billion from the Permanent Fund this year to buy time until elected officials can agree on a long-term, sustainable fiscal plan.
That extra $3 billion would be in addition to the withdrawal of about $3 billion a year under a 2018 law adopted by the Legislature to protect the Permanent Fund from excessive draws on its earnings.
Under Dunleavy’s plan, the annual dividend would average about $2,400 per person the next couple of years, growing from there. That would be almost double the average PFD of the past 10 years.
Lawmakers and governors have not followed the 1980s’ dividend calculation formula that is set out in state law since 2016, when state finances got so tight that there was not enough money available to pay for public services and also cover the so-called full dividend under the formula, which would be more than $3,000 this year.
Then-Gov. Bill Walker forced the issue in 2016 by vetoing half of the dividend amount that year. Legislators have debated the formula ever since. Dunleavy won the gubernatorial election in 2018 with a pledge of the larger PFD.
Dunleavy said last week that his proposals would help settle long-running debates over issues that have become political footballs.
“Imagine a world where we’re not wrestling over the Permanent Fund again,” he said. “Imagine a world where we’re not wrestling over the PFD or the earnings reserve or PCE.” To further protect the Power Cost Equalization (PCE) program, the governor’s proposal would move the $1 billion account into the Permanent Fund, rather than continue to maintain it as a separate endowment to subsidize the high cost of electricity in rural communities.
Though Dunleavy’s plan would move the $1 billion under the constitutional protection of the Permanent Fund, the annual PCE spending to help rural residents still would be subject to annual legislative appropriation.
Dunleavy was joined at a news conference by more than 20 legislators, mostly fellow Republicans.
Senate Majority Leader Shelley Hughes, a Palmer Republican, said compromise is needed. Legislators who dug in on their positions are “now willing to pull their heels out of the mud, that’s a good thing.”
She said reaching resolution on the dividend is key to addressing the state deficit. “Because until this matter is settled, you cannot figure out how to close the rest of the gap,” she said. Discussions on spending and revenue will follow, she said.
House Speaker Louise Stutes called Dunleavy’s proposal a “starting point.” Stutes, who leads the House majority caucus comprised mostly of Democrats, told reporters there is a “general consensus among all legislators we need to address” the dividend formula in some way.
“Even though there’s not a solution yet, there’s an optimism that we’re at least talking about a solution,” the Kodiak Republican said.
Juneau Democratic Sen. Jesse Kiehl, who serves on a committee that heard the governor’s proposal to take an additional $3 billion from the Permanent Fund to cover larger PFDs and the budget, called it a “raid” on the account. While he supports putting a dividend of some kind in the constitution, it needs to be “reasonable” and sustainable, he said, questioning the cost of the 50-50 split.
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