The following is an excerpt from this week’s edition of the Alaska Political Report. You can click here for more information about the Political Report. A subscription is $1,299/year per organization. Discounted pricing is available for non-profits and government entities. Our coverage of the budget starts with the governor’s proposed budget in mid-December and we track everything in detail through the entire process. If you have any questions or would like to subscribe, please email firstname.lastname@example.org.
With just 13 days left until the constitutional session limit, there is still no deal between the House and Senate on passing a budget — and the gridlock, as usual, boils down to the size of the Permanent Fund Dividend.
The operating budget passed by the House remains in the Senate’s possession, and has yet to move out of the Senate Finance Committee. And the Senate is still holding the proposed capital budget.
It’s important to note that the two chambers’ versions of the operating budget are not substantially different, other than the size of the dividend, a boost to schools spending and a proposal for the state to assume authority from the federal government over a key wetlands permitting function, known as the 404 program.
The House budget has a 50/50 dividend, which costs the state some $1.7 billion, and pays each Alaskan roughly $2,600. The Senate’s version, so far, includes a 25/75 dividend, which costs approximately $850 million and pays $1,300.
When the House passed their version of the operating budget, they failed to get the 30 votes needed to draw from the Constitutional Budget Reserve, leaving a $400 million hole in the spending plan. Senate members have been clear that they do not support drawing from the CBR to pay a larger dividend.
The House initially approved a one-time increase of $175 million for schools spending. But when the House majority changed the funding source from general funds to the CBR, the boost was eliminated from the budget when the CBR vote failed. The Senate’s version has the $175 million using general funds.
The House Finance Committee rejected GOP Gov. Mike Dunleavy’s request to take over 404 permitting from the federal government, but the proposal was put back on the House floor. The cost is just $5 million, but the policy itself is controversial, and the Senate’s current budget proposal does not include it. While Dunleavy agreed to include the request in his budget proposal, Environmental Conservation Commissioner Jason Brune appears to be the one really pushing it.
This week, Senate Bill 107 also passed. This legislation would permanently change the Permanent Fund dividend formula to 25/75, with a trigger for it to change to 50/50 if lawmakers agree to raise $1.3 billion in new revenue (read: taxes), and as long as the CBR holds at least $3.5 billion by 2031. Senate leaders, we’re told, asked Wasilla Republican Speaker Cathy Tilton to keep the bill out of the Ways and Means Committee, chaired by dividend booster Ben Carpenter, R-Nikiski, but she referred the legislation there anyway — complicating the negotiations between the two chambers on an exit strategy
Two other big issues could factor into a deal for adjournment: Dunleavy’s carbon legislation and the proposal to include S corporations (read: Hilcorp) in the state’s corporate tax code.
The Senate Resources Committee heard multiple amendments Wednesday on Senate Bill 48, Dunleavy’s carbon credits bill. It passed out of the committee, and now goes to the finance committee. The S corporation tax was part of Anchorage Democratic Sen. Bill Wielechowski’s oil tax bill, but it was grafted onto Senate Bill 122 – an internet tax bill – by the Senate Finance Committee on Wednesday. The committee is scheduled to hear the oil tax bill and the internet tax bill Friday, though not the budget bills.
Time is running out. The Legislature must adjourn by midnight on May 17.
The Senate could send the operating budget back to the House next week. If the House fails to agree to the Senate’s changes, the budget will go to a conference committee. We have spoken to several House majority members that could be persuaded to vote for concurrence, but based on those conversations, a “concurrence” vote seems unlikely at this point.
There’s still the nuclear option: The Senate stuffing the capital budget into the operating budget, and sending it back late next week. This is something the Senate has said it will not do — but with time running out, it may be the only way to get an operating and capital budget passed before the session ends. And even if some kind of deal is reached between the two chambers, it’s still not clear what GOP Gov. Mike Dunleavy will do if the dividend is less than 50/50.
If the Legislature cannot pass a budget by May 17, they have the option to extend by 10 days. But that requires a two-thirds vote by each body, which is unlikely in the House. Alternatively, Dunleavy can call a special session within one hour after adjournment for a date less than 30 days away. Normally, the governor must give a 30-day notice for a special session. A budget must be passed and enacted by July 1 to avoid a government shutdown.
Sources tell us there have been conversations between the House and Senate about meeting halfway between a 50/50 and a 25/75 dividend, which would require a small draw from the CBR. But there has yet to be an agreement on that, and we don’t know what Dunleavy would do. This afternoon at an informal press conference, Anchorage independent Rep. Calvin Schrage, the minority leader, said he does not see a scenario where the House minority would vote to spend money from the CBR.
There are a lot of moving parts, and things can move fast when a deal is reached. But at this point there is no deal.
Oil prices are down to $70 per barrel, a 12% drop in the last two days. This does not bode well for the House majority’s wish for a larger dividend. We are tracking things closely and will provide updates as we get them.