The state budget standoff in Juneau — with layoff notices and all the rest — is not strictly a confrontation between the House and Senate about the billions the state plans to spend next year.
It's really about the future of the Alaska Permanent Fund.
While the Senate has proposed a substantial cut of nearly $100 million to schools and the University of Alaska — some of that for negotiating purposes — the competing versions of the fiscal 2018 budget differ by only a few percentage points.
The differences would be simple to resolve, but for the underlying ideological split about how to pay for government in the years ahead.
The Republicans want to cut the dividend to $1,000 and use a major slice of the earnings of the Permanent Fund to pay the bills.
The Democrats want a $1,250 dividend. But in exchange for an agreement to spend Permanent Fund earnings to pay for state government, the Democrats want an income tax — one of the lowest in the United States. They say this would spread the burden to those who can afford it and protect the dividend for the future.
But even the lowest income tax in the United States, if placed on the table, would be unacceptable to Republicans.
They keep saying they have a "complete fiscal plan" that doesn't require any income tax. The math doesn't add up, however. They are leaving hundreds of millions in annual expected costs out of their arithmetic and counting on hundreds of millions in future budget cuts they can't identify.
Even the prospect of a 15 percent to 20 percent rise in oil revenues because of new oil production of 100,000 barrels a day several years hence that may or may not happen is also strictly speculation.
Without a complete accounting, the statement "we don't need an income tax" really means "we don't want an income tax." In the words of Senate President Pete Kelly, there is a "foundational absurdity" in proposing to collect an income tax while the state is still handing out dividends.
A state budget of some sort will ultimately be approved this year. With or without a tax, if it relies on the Permanent Fund for a couple billion dollars, we'll be in a new era in which the account becomes a foundation of state finances. The dividend won't disappear, but it's likely to shrink over time. It will shrink faster, along with the earnings reserve of the Permanent Fund, if the state refuses to enact a broad-based tax.
The Democrats say a cut in the dividend is a tax that falls heaviest on the poor. Many Republicans see a cut in the dividend not as a tax, but a reduction in a freebie.
Since its creation 40 years ago, the Permanent Fund has been used to pay dividends and build state savings, with many competing visions about whether and when the account would be called on for other purposes.
The fund has grown to $59 billion, as of this week, because the state could afford the hands-off option. Over time the myth that the earnings could be spent on nothing but dividends turned into conventional wisdom. Any suggestion to do otherwise was attacked as a raid on the Permanent Fund.
The oil price collapse has not destroyed that myth, but weakened it enough that both the House and Senate have agreed to use fund earnings to help pay for government, acting reluctantly and with conditions.
The Senate proposed a porous spending cap and budget cuts that were far less than advertised, which tells me that pledges for a half-billion more in future cuts are imaginary. The House proposed some spending cuts, an income tax and a slight increase in oil taxes.
Each side in this stalemate portrays the other as obstinate and unwilling to compromise, but there is plenty of that to go around.
That reduced dividends and an income tax have become bargaining chips at all is the clearest sign that this is a turning point in state history.
If a tradition is established in Alaska that withdrawing money from Permanent Fund earnings is a logical way to help pay the bills, there will be pressure to take more in the years ahead, as billions in "excess earnings" will be seen in a different light.
Columnist Dermot Cole can be reached at dermot@alaskadispatch.com.
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