Sens. Bert Stedman, of Sitka (left), and Donny Olson, of Golovin, talk at a meeting of the legislative conference committee in Juneau on May 26. The committee's job is to resolve the differences between the House and Senate versions of the state budget for the fiscal year that starts July 1. The committee includes three members each from the House and Senate.
Setting the amount of this year's Permanent Fund dividend - and deciding on how to pay the cost - continues to hold up agreement on a state spending plan for the fiscal year that starts July 1.
The Legislature has been in special session since May 20. The joint House-Senate conference committee that was appointed to settle budget differences has met only a few times, briefly reviewing non-controversial items, with a meeting expected sometime Wednesday.
Most legislators have left Juneau to return home or attend to their personal lives while negotiators focus on the political and financial struggles of settling on an amount for the PFD that could win enough votes for passage in the House and Senate.
"By far the most challenging of the compromises that need to be made is the amount of the Permanent Fund dividend," Juneau Rep. Sara Hannan said in an email to her constituents on Tuesday. "Legislators across the political spectrum are at odds on this question."
Years of declining state revenues have made it mathematically impossible to pay the large dividend as calculated under the 40-year-old formula in state law because the Permanent Fund earnings that were used to pay the PFD in past years now also go to help pay for schools, the university system, highways and everything else in the budget.
One option for legislators this session would be to exceed the annual limit on Permanent Fund withdrawals to pay a larger PFD. Though Gov. Mike Dunleavy supports this option with a dividend of around $2,400 for each Alaskan, he does not have the backing of a majority of lawmakers.
The governor proposes taking an additional $3 billion out of the Permanent Fund to pay the larger dividend and postpone any taxes on Alaskans for at least two years.
Dunleavy also asked lawmakers in the special session to support putting the PFD into the state constitution, but he appears far short of the votes to approve that legislation.
The governor's plan assumes more budget cuts and long-term higher oil prices, and counts on years of strong Permanent Fund investment earnings, without any bad years.
Legislators opposed to the governor's fiscal bet point to his reliance on more cuts to public services spending. "If you think it's a good idea to eliminate Pioneer Homes, the Marine Highway, and de-fund public safety, then this is a great plan," Anchorage Rep. Zack Fields said on social media last week.
Higher oil prices this spring, driven up by OPEC and its allies withholding millions of barrels of oil per day from the global supply, are helping Alaska's budget. And so is more than $1 billion in the latest round of federal pandemic aid, which the state can use to pay for some public services, freeing up more money for the PFD.
But oil prices are unpredictable, and the federal money is a one-time budget bonus.
Even with the assistance of higher oil revenues and federal aid, settling on the same dividend amount as last year, $1,000, would require drawing down the last of the state's 30-year-old Constitutional Budget Reserve Fund.
The budget reserve serves as the state's cash-flow account, covering spending at the start of each fiscal year while the state waits for tax and oil royalty payments to arrive. It also provides a cushion against volatile oil prices and their hit to the state treasury.
Using more of the dwindling budget reserve to help cover a $1,000 PFD this year would "drain it down to dangerous, precarious levels," Anchorage Sen. Natasha von Imhof said Tuesday.
If the Legislature uses a chunk of the federal aid to balance the budget while paying a $1,000 dividend, what about next year's spending plan, the senator asked. Essentially draining the budget reserve fund this year could leave the state unable to pay a PFD in 2022, she said.
A slim majority of the Senate last month - not including von Imhof - approved a budget with a $2,300 to $2,400 dividend, which would require overdrawing the Permanent Fund. The House majority opposes taking extra money out of the fund to pay a dividend more than double the amount of last year's PFD.
Budget talks this month also include negotiations over how to spend the federal pandemic aid funds on services and possibly construction projects across the state.
Senate Majority Leader Shelley Hughes, of Palmer, said Dunleavy's plan for a larger PFD enshrined in the constitution is a first step, but said the governor needs to do more. "Is he willing to put forward a sales tax? You know, is he willing to really stick his neck out and take some leadership to help get this through?" Hughes told the Anchorage Daily News.
The governor has also called the Legislature back to work for a second special session starting Aug. 2 to consider several more of his proposed constitutional amendments, including one that would prohibit any new state taxes without the Legislature first going to the public for permission.
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