Republican leaders of the state Senate and some in the state House hope they can end the session by Wednesday, the constitutional deadline, paying for most of state government operations in the next fiscal year with a multibillion-dollar withdrawal from the earnings reserve of the Alaska Permanent Fund.
Money from the earnings reserve can legally be spent with a majority vote, but trying to fund most of government that way is fraught with political and economic obstacles.
The GOP leaders look at this as a way of not having to negotiate with the Democratic minority in the state House. The traditional savings account used to balance the budget is the Constitutional Budget Reserve. A withdrawal this year from that account would require a three-quarter majority vote and some support from Democrats in the state House.
The Permanent Fund earnings can be tapped with a majority vote, but that majority has always been hard to come by because of the invisible political force field that has protected the reserve for decades. With the state now paying more in oil tax subsidies than it collects in oil taxes, however, state finances have changed to the point where the $52 billion account is no longer deemed untouchable.
Well, yes and no. It will all depend on how the withdrawal takes place.
GOP leaders assert they haven't had time to come up with a financial plan, though they will be able to do that in a special session.
It's not the shortage of time that has created this impasse, it's the underlying and unresolved fighting about oil tax credits, oil taxes, income taxes, fuel taxes, mining taxes, alcohol taxes and the use of Permanent Fund earnings.
The earnings reserve grows by about $100 million a month from Permanent Fund investments, which have outpaced oil as the largest source of state income. The reserve contained $8.9 billion as of the end of March. According to some estimates, the state would need to withdraw $5.5 billion for the fiscal year that starts in July to pay for government and dividends, a spending rate that would put future dividends at risk.
Gov. Bill Walker says he will not accept a budget that just takes money from the Permanent Fund earnings reserve without a longer term plan that looks sustainable.
"I have heard some legislators say their intention is merely to pass some form of oil and gas tax credit reform, to draw down $4 billion from the Permanent Fund earnings reserve account to fund next year's budget and then go home," Walker wrote legislators Saturday. "Such an outcome would be a terrible result for the future of our state, and one I simply cannot accept."
His argument is that failing to restructure the fund now and postponing talk about new taxes until after the fall elections would make it that much harder a year from now, as billions more will be spent without a clear path forward.
The Walker plan and others would continue the dividend at a reduced level. The unstructured withdrawal being pushed by Senate leaders doesn't address future dividend options at all.
The case for making no change to the formula is based on the dual hope that oil income will show a dramatic increase in the future and the gas line will be very profitable. This makes it easier for current politicians and, if the predictions are wrong, much harder for those who will follow.
Walker's warnings may not stop the Legislature from using the Permanent Fund earnings without a plan, so we could end up with a replay of the 2015 budget fiasco and layoff notices to thousands of state employees if the governor vetoes the budget.
The reality is that any option that relies exclusively on the Permanent Fund will make it harder or impossible to pay a dividend with the current formula in 2018 and beyond. The state has to restructure its finances or pretend that world oil prices are guaranteed to double in a few years.
That is a big "if" that we can't count on.
There is likely more opposition in the House than the Senate to using Permanent Fund earnings as an exclusive quick fix. It's not lost on many members of both parties that withdrawing billions from the earnings reserve would ignite a backlash about "stealing the dividend," a big liability for incumbents hoping to be re-elected.
To be clear, an earnings reserve withdrawal would include more than $1 billion for dividends to be paid this fall. And while any use of the earnings aside from paying dividends is likely to be met with some opposition, the degree of pushback will be influenced by perceptions of balance.
If the oil companies and other industries escape largely unscathed, and an income tax never materializes, an effort to siphon off upwards of $5.5 billion to pay for government operations and the 2016 dividend in the next fiscal year will be widely attacked as unbalanced, putting incumbents more on the defensive.
Dermot Cole is a Fairbanks columnist. One of his daughters works as a deputy press secretary to Gov. Bill Walker. The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.