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 jeff@akpoliticalreport.com.

As the operating budget heads to the House floor, the Republican-led House majority is facing a major dilemma.

Even after the House Finance Committee cut the proposed dividend to the 50/50 amount, or some $2,600 per qualified resident — down from the statutory amount GOP Gov. Mike Dunleavy requested — the state still faces a deficit of roughly $400 million. And that’s without any increase in schools spending.

One budget amendment that’s sure to be introduced on the House floor is for a 75/25 dividend — the same amount that the Senate Finance Committee appears likely to choose. Bethel Democratic Sen. Lyman Hoffman has been pushing for this amount — which sets aside 75% of Permanent Fund earnings for government services and 25% for dividends — with a step up to 50/50 if lawmakers can agree on ways to raise new revenue. With a 75/25 dividend, or roughly $1,300 per qualified resident, there would be a budget surplus of some $400 million. But many in the House majority are adamantly against going below the 50/50 amount.

If the 50/50 amount remains in the final House budget, a draw on the dwindling Constitutional Budget Reserve savings account — which has just over $2 billion remaining — would be required to cover the deficit. But such a withdrawal requires a three-fourths majority, or 30 votes in the 40-member House. The House majority has 23 members, so even if every member voted for the 50/50 amount — which isn’t assured — the chamber would still need a minimum of seven minority votes to spend the money from the CBR.

This is the dilemma. For the minority to give their votes for a CBR draw, members will want to see an increase in education spending in exchange. A $1,000 increase to the per-student spending formula would cost the state some $250 million — growing the deficit to some $650 million with the 50/50 dividend. But meanwhile, many of the Republicans in the majority do not want to boost education spending without more provisions to measure outcomes.

The other factor is taxes. Passing a 50/50 dividend and increasing education spending would leave the CBR at a dangerously low level. Some form of new revenues would almost certainly be required, either this year or next. Anchorage Democratic Sen. Bill Wielechowski has a new bill to increase oil taxes by reducing the per-barrel credit, taxing oil and gas companies that are not registered as C-corporations and blocking oil companies from writing off capital expenditures in one field to offset production taxes on another. Nikiski Republican Rep. Ben Carpenter recently introduced a bill for a sales tax. But many in the House majority do not want to increase oil taxes or pass a sales tax.

The House could pass a 75/25 dividend, which would leave enough of a surplus to increase education spending and avoid a CBR draw — which aligns with the direction the Senate is already moving. This scenario leaves open the possibility that the House could concur with the Senate’s eventual changes to the House budget proposal — as the two versions would not be substantially different. That would virtually guarantee an easy end to the legislative session. But the 75/25 amount is unacceptable to most of the Republican members of the House majority.

Alternatively, the House could pass a 50/50 dividend, which would require increased education spending, a hefty draw on the CBR, and likely force either increasing oil taxes or passing some form of a broad-based tax.

The House majority does not have any rules on how their members must vote on the budget — a break from the binding caucus rules adopted by House majorities in previous years. That means things could get very interesting on the House floor next week. If all 16 members of the House minority vote for a 75/25 dividend, just five members of the majority would need to join them for the proposal to pass. And that is assuming all 40 members are present. Amendments, unlike bills, can pass with a majority of members present. So if one majority member is missing, an amendment can pass with 20 votes instead of 21.

If an amendment for a 75/25 dividend passes the House, chaos will likely ensue, as some majority opponents of the smaller dividend could then withhold their support for the full underlying budget proposal. We are following the process closely and will have updates as they happen.