Budget standoff continues as House votes to double Permanent Fund dividends

JUNEAU — The two sides in the Alaska Legislature's budget standoff appeared to draw no closer to a compromise Wednesday in spite of an approaching deadline, with the only major development a vote to spend an extra $700 million in the face of the state's massive deficit.

The House passed a modified capital budget with a surprise, bipartisan amendment to inflate Permanent Fund dividends to more than $2,000 this year, nearly double what they had been prior to Wednesday. But the vote may have the effect of prolonging budget negotiations in the face of a government shutdown rather than actually fattening Alaskans' wallets.

The move drew quick condemnation from leaders of the Republican-led Senate, who said the vote was a distraction and called on the largely-Democratic House majority to finish negotiating an operating budget to avert a shutdown at the start of the next fiscal year on July 1.

[Alaska state government is scheduled to shut down July 1. Here's what that might look like.]

Legislative leaders from both chambers have also been pushing to finish their business before the end of the special session Friday — though a timely finish appeared to grow increasingly remote Wednesday.

"We believe there needs to be a priority reset," said Soldotna Republican Sen. Peter Micciche, the majority leader.

House Speaker Bryce Edgmon, D-Dillingham, told reporters late Wednesday that his majority coalition is keenly aware of the dwindling time left before the state runs out of money and all but essential services must shut down. But he made clear that his 22 members won't be satisfied by passing an operating budget without additional deficit-reduction measures like a broad-based tax or increased oil taxes — adding that without them, the state will continue to face deficits of hundreds of millions of dollars that would force deeper cuts to already reduced government programs valued by constituents.

Edgmon resisted labeling Wednesday's vote to double dividends as a setback — suggesting that his members were already frustrated with the direction of their negotiations with the Senate.

"It's hard to call it a setback when there's nothing to be set back from," Edgmon said. He added: "Our caucus continues to fight for a long-term fiscal plan that's sustainable."

Staffers, lobbyists and minority lawmakers were left trying to decipher the few clues about how negotiations were progressing Wednesday, while also pondering paths to the Legislature's egress from Juneau.

Actual lobbying has largely halted, as House and Senate leaders focus on bringing their caucuses to a consensus.

"It's kind of in the hands of these groups and they're not taking a whole lot of advice from outside at this point," said Don Etheridge, the Alaska AFL-CIO's lobbyist. "They kind of have their plans figured out."

Not part of a plan, however, was the House's vote to pay a Permanent Fund dividend of more than $2,000 this year.

The bipartisan, 26-14 vote on the amendment from Anchorage Rep. Gabrielle LeDoux — one of three GOP members of House leadership — has the effect of dispensing with the Legislature's biggest deficit-reduction measures, which would have closed a large portion of the state budget gap by halving the dividend.

But LeDoux justified her amendment to the capital and supplemental budget by the Legislature's failure to produce a broader deficit reduction plan.

"At this point, it looks like we may be leaving this building with only a budget, without a comprehensive plan — including, most importantly, revisions to oil taxes," said LeDoux. "Without this amendment, we are headed to a budget which reduces the people's PFD. And to this I say not only 'no,' but 'hell no,' and urge you to vote with me."

The vote would ensure that $1.5 billion is set aside for dividends this year. Previous proposals from the House and Senate, respectively, would have appropriated $800 million and $700 million for dividends.

Before Wednesday, both the House and Senate had proposed to use the remaining money from the Permanent Fund to help fix the state's $2.5 billion deficit.

But the House's doubling of the dividend will not take effect unless the Senate accepts it as part of the capital budget, Senate Bill 23,

It would also have to pass muster with Gov. Bill Walker, who last year used his line-item veto to slash the Legislature's dividend appropriation in half, citing the massive deficit.

The Senate majority's proposed use of Permanent Fund earnings for government services, along with budget cuts, form the core of that chamber's deficit-reduction plan, suggesting that it's unlikely to approve extra cash for dividends budgeted by the House.

But members of the largely Democratic House majority have objected to filling the deficit by using budget cuts and Permanent Fund earnings alone, as the Senate proposed. That's because doing so would reduce each Alaskan's dividend by the same amount — disproportionately affecting lower-income residents.

The Senate majority last month rejected a House proposal to levy a statewide income tax, which would ask for larger contributions from Alaskans with higher earnings like the federal graduated income tax. And lawmakers have also failed to resolve their differences over legislation that could eliminate cash tax-credit payments to oil companies, and raise their taxes — another key component of the House's deficit-reduction plan.

[Alaska Senate tees up income tax and votes it down]

House majority members sounded frustrated Wednesday by their inability to extract more concessions as the Senate pushes them to approve an operating budget. Doing so could sideline their broad-based tax and oil-tax proposals, while the Senate majority also hasn't been willing to give up its proposed cuts to schools that the House majority vehemently opposes, said Anchorage Democratic Rep. Andy Josephson.

"They're giving us nothing. I would be happy to reach some reasonable compromise. I don't think members of the House expected to get everything we delivered," Josephson said. "But they're not showing any willingness to meet in the middle."

Asked to respond to Josephson's characterization, Micciche, the Senate majority leader, said: "How can I respectfully do that without using the word 'hogwash?'"

He said his caucus is willing to "aggressively compromise" on the budget if the House majority lays off its demands for additional deficit-reduction measures.

The Senate would also be making its own concessions by giving up on a standalone bill to restructure the Permanent Fund that now appears dead anyway because it includes majority priorities like a flexible state spending limit and a provision to reduce withdrawals from the Permanent Fund at higher oil prices, Micciche said.

Lawmakers still didn't rule out the possibility of passing an operating budget by Friday. But they acknowledged that the likelihood appears to be slipping away, particularly because of legislative rules that require a 24-hour waiting period before one chamber can approve a budget amended by another.

Veterans of the legislative process, meanwhile, aren't raising alarms yet. Former Sen. Rick Halford addressed the current Senate from the gallery Tuesday, telling them he'd been in Juneau when the Legislature had drawn closer to a government shutdown and that "it's not the end of the world — it'll work its way out."

"There's always starts and stops and little bumps in the road," said Jim Duncan, a former legislator who now heads the largest state-worker union, the Alaska State Employees Association. "Friday would be an optimistic view. But there's 15 days left in the month of June."