With four weeks left before the May 17 adjournment deadline, legislators are focusing on the state budget and how to resolve big differences between the House and Senate over school funding and the amount of this year’s Permanent Fund dividend.
The House approved its version of the budget on Monday, sending it to the Senate for certain changes.
And while the major disputes are over how much to spend on education and dividends, and how to pay for the spending this year, many lawmakers also are kicking around ideas to generate new revenues in the future to help pay for popular budget items.
The House’s budget for the fiscal year that starts July 1 contains a $2,700 dividend at a cost of $1.7 billion — the single-largest expenditure in state spending — and a $175 million one-time-only boost to public schools, bringing total state funding for school district operating costs to about $1.35 billion.
Districts have been asking for a larger increase than the House approved, and they would prefer a permanent increase in the funding formula.
Because of the larger PFD, the House’s spending plan would require drawing roughly $600 million from the $2 billion Constitutional Budget Reserve. Legislators and governors have used the savings account to plug budget gaps over the past 30 years.
The Senate, however, has indicated support for a $1,300 dividend, cutting almost $900 million in spending from the House plan. The Senate also is considering legislation to provide a permanent increase to the school-funding formula at a cost of $257 million for the 2023-2024 school year.
Unlike the Republican-led House majority, the bipartisan Senate majority caucus wants to craft a budget without drawing from dwindling savings. A smaller PFD accomplishes that fiscal goal.
The Republican-led House passed the budget 23-17, with the Democratic-led minority voting in opposition. The minority has been pushing for a permanent increase in school funding.
The House typically first writes the operating budget, which authorizes appropriations for state agencies and programs. The Senate initially writes the capital budget, which is used to pay for public works and construction projects. The two chambers negotiate differences in the spending bills in the final days of the session.
The House and Senate finance committees are scheduled to continue their budget work this week.
The House had planned to pass the operating budget last week, but held off on taking action until its leaders could talk with Senate members about a plan to move forward. House and Senate leadership met April 12 behind closed doors, and discussions are ongoing on budget priorities and how to adjourn on time.
After a sharp drop in oil revenue projections last month, Sitka Sen. Bert Stedman said there was simply not enough money available to pay for the House’s larger dividend, a school funding increase and a larger capital budget to provide the required match for federal infrastructure dollars.
“I think there’s some new members that are surprised, and maybe even a little shocked that there isn’t the revenue stream to back up their election rhetoric,” he said April 12. Several legislators who won last year’s elections campaigned on pledges of large PFDs.
House budget amendments were finalized almost two weeks ago following a dramatic though temporary walkout by the Democrat-dominated House minority caucus over a plan to use savings to pay for the one-year boost to school funding.
The minority said school funding should be a priority for general fund dollars, not an addendum paid from savings.
Spending from the Constitutional Budget Reserve requires approval of three-quarters of lawmakers from both legislative chambers. The vote to draw on savings failed in the House on Monday, lacking Democratic support.
If, after House-Senate negotiations to reach a final budget bill, a draw from savings still is included in the spending plan, the House would get another chance to approve the three-quarters vote.
Legislative leaders met with Gov. Mike Dunleavy on Friday to discuss this year’s budget and a long-term fiscal plan, which could include new revenue measures, a spending cap and a new formula for calculating the annual PFD.
The Senate is considering a bill that would increase taxes on oil producers, and amend the state’s corporate income tax law so that privately held producers like Hilcorp would pay taxes the same as larger, publicly held corporations such as ConocoPhillips. Under the current law, such privately owned companies do not pay corporate income tax in Alaska.
The Senate also has legislation that would establish a new dividend formula, where 75% of the annual draw from the Permanent Fund would go to state services, and 25% would go to the dividend. The Senate’s $1,300 dividend figure matches that 75-25 formula. Senate leaders have consistently said that new revenues would be required to pay a larger PFD.
The House has a broader slew of proposals to enact a fiscal plan, introduced by majority and minority members — and none moving toward passage as of this week. One would implement a state sales tax while simultaneously reducing corporate income taxes. There is a proposal for a state income tax, and another plan to increase property taxes on oil companies.
Other legislation proposes to amend the Alaska Constitution to guarantee a larger dividend.
The governor has been silent on backing revenue-raising measures, other than proposing that the state get into the business of selling carbon credits for unlogged trees and earning money by leasing state subsurface rights to companies for storing climate-changing carbon dioxide underground.
The governor has said he would not support an income tax.
Dunleavy wants lawmakers to take the lead on crafting a comprehensive fiscal plan. He has not proposed an increase in school funding.
Dunleavy’s budget is based on drawing from savings to cover a larger PFD than even the House or Senate have proposed.
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