What the heck is going on in Juneau? Here’s a Q&A on the Alaska Legislature and the looming shutdown

With the Alaska Legislature unable to pass a budget five months after it started work this year, a state government shutdown is looming on July 1. A shutdown could imperil Alaska's huge summer salmon fisheries, halt road construction and close the state ferry system, causing huge headaches for residents, businesses and tourists.

How did we get here and how does it all end? Here's our best shot at an explanation.

So, really: What the heck is going on in Juneau?

Simultaneously, a lot and not very much.

The Alaska Legislature has been in Juneau for five full months, which includes a 90-day regular session that was extended 31 days, plus another 29 days in a special session. The special session, which is capped at 30 days, ends Friday.

Lawmakers, prodded by Gov. Bill Walker, have been trying to carry out two distinct tasks that are closely linked: passing an Alaska state government operating budget for the next fiscal year starting July 1, which contains appropriations for the items that are budgeted, and assembling a broader fiscal plan to pay for the budget this year and for years to come.

The goal is to fix the structural problem with Alaska's finances caused by the crash in oil prices and long-term decline in production on the North Slope. Both have left the state with a $2.5 billion deficit and unrestricted general fund revenue last year that covered less than half of expenses.

OK, sounds simple enough. Why haven't those things happened yet?

It's complicated. Let's split this discussion into two parts and first talk about the operating budget.

The operating budget is pretty much the only thing that the Legislature absolutely has to do. If it's not done by July 1, all but the most essential state government services will shut down, causing huge economic havoc and disruptions to the lives of Alaskans and visitors.

Both the House and Senate passed operating budget proposals by early April. They're substantially different — the Senate's budget includes steep cuts to education and the state university system that the House opposes — but they're not so far apart as to be unbridgeable. If the dispute over spending was the only problem, the Legislature would likely have finished up weeks ago.

[Here's where the major bills stand in the Alaska Legislature right now]

So, the fiscal plan is the real problem?

Exactly.

Since the early days of the legislative session, the Republican-led Senate majority and the largely Democratic House majority coalition have been pushing starkly different plans for restructuring the state's finances.

The Senate majority says it can fill the most of the $2.5 billion deficit through one proposal: restructuring the $60 billion Permanent Fund and using most of its investment earnings to help pay for government services.

Using about $1.8 billion in investment earnings could cut the deficit to something like half a billion dollars, which would stretch out the cash left in the state's primary savings account for another seven years. A rise in the price of oil could further improve the state's finances.

What do House majority members have to say about the Senate's plan?

They really, really don't like it. In fact, they won't even call it a plan, derisively referring to it as the "drain and pray" proposal.

The House majority's main objection to the Senate's plan is that it relies entirely on Permanent Fund earnings for new revenue — which has a side effect of paying Alaskans smaller dividends, which also come from the fund's earnings. Under the Senate's plan, Alaskans would get a $1,000 dividend this year, instead of more than $2,000 if the amount was set by the historic formula.

House majority members say that such a proposal is unfair because each Alaskan, rich or poor, would lose the same amount of money from their dividend. They also say that running continued deficits would likely force continued cuts to programs valued by their constituents.

They're willing to approve smaller dividends and the use of Permanent Fund earnings for government services — but only if accompanied by measures that ask more of wealthy people and oil companies.

Earlier in the session, the House approved raising $700 million with an income tax that asks higher-earning Alaskans to pay a larger share of their earnings. They've also proposed legislation to increase taxes on oil companies.

But the Senate majority has rejected both of those ideas.

So, why can't the Legislature just pass the operating budget now and come back to the fiscal plans later? That way everyone could stop worrying about a government shutdown and go fishing.

That's what the Senate majority has pushed for.

But the House majority hasn't been willing to go along. The main reason: Passing either the House or Senate budget, as currently structured, would effectively adopt the Senate's fiscal plan.

Legislation to restructure the Permanent Fund and dividends hasn't been approved. But both the House and Senate budget proposals have the same effect, because they'd both spend more than $1 billion in Permanent Fund earnings on government services, and reduce dividends to around $1,000. (The House budgets slightly more for dividends — about $1,150.)

House majority members say they're still trying to reach a compromise with the Senate that would allow for some type of a broad-based tax, as well as a tax increase on oil companies. But Senate leaders are trying to limit the discussion to the operating and capital budgets alone, and say they're willing to compromise on state spending cuts to get those bills done.

Isn't there some kind of compromise both sides could live with?

Walker, the governor, proposed earlier this month what he called a "compromise" package. It includes an operating budget with a reduced dividend of $1,000, and which left intact all the money the House wants for schools and the university system, which the Senate had proposed to cut sharply.

Walker's package dispensed with the House's proposed oil tax increase, while keeping a plan supported by both chambers to eliminate cash tax credit payments to oil companies.

And it would have swapped the House's $700 million income tax for a modified, scaled-back version called an education head tax that would raise $100 million and ask far less from the highest-earning Alaskans.

The package was immediately denounced by the House majority leader, Anchorage Democratic Rep. Chris Tuck. Since then, neither chamber has advanced any broad-based tax legislation that could satisfy the House majority.

What happens if this isn't worked out by Friday? That's the last day of the special session.

Both House and Senate leaders have said they're keenly aware that a government shutdown would be disastrous, and in recent days business and organized labor leaders have lobbied them to avert one. So it seems almost certain lawmakers would be back to work within a few days of the end of the special session, since just two weeks are left before a shutdown would start.

The Alaska Constitution allows Walker to call another special session. If he doesn't, the Legislature can call itself back by a vote of 40 of the 60 lawmakers in the House and Senate.

Why is our state government so gosh darn dysfunctional?

It's true lawmakers have worked into June without a fully funded operating budget in two of the past three years.

But Alaska does not have a monopoly on legislative gridlock.

Lawmakers in Washington state are also facing a partial shutdown July 1 as they near the end of a second special session.

And in Illinois, a budget impasse is threatening to shut down road work. That state has gone without a fully funded budget for two years, instead relying on stopgap measures.