Alaska Senate and House have tentative agreement on $1,600 PFD, but education budget fight remains unresolved

JUNEAU — Alaskans are likely to get a $1,600 Permanent Fund dividend this year after a state Senate committee on Thursday suggested matching the House's proposal to pay that much.

The Senate Finance Committee proposed to spend $1.02 billion on dividends this year — the same as the House set aside in the budget it passed earlier this week. Lawmakers expect that amount to be enough for a $1,600 dividend for each Alaskan.

The Senate's mostly Republican majority released its dividend plan at a committee hearing Thursday afternoon. The PFD proposal was one of several the majority unveiled at the meeting, in an effort to advance budget and spending talks with the largely Democratic House majority in the closing days of the session.

There are less than two weeks left before an initial, 90-day deadline for lawmakers to finish their work in Juneau.

But several major questions were unresolved before the start of the hearing — including how much the Senate's more conservative leaders would diverge from House plans for the dividend, schools spending and budgets for state agencies.

Those questions were answered, in part, when the finance committee released new versions of the state budget as well as House Bill 287, which that would separate schools spending from the Legislature's annual budget fight.

The Senate's proposals revealed a surprising agreement on the size of the dividend, but suggested that the two chambers still have work to do to reach agreement on a schools budget.

"There's some real positive things," Homer Rep. Paul Seaton, one of three Republicans in House leadership, told reporters after the hearing. "They have come around to doing the $1,600 dividend."

The Senate's proposals, including the $1,600 dividend, aren't final, however.

They're in preliminary drafts of legislation that still must pass through the Senate Finance Committee, then the full Senate.

The House will also have to sign off on any differences between the Senate's proposals and its own, and Gov. Bill Walker, with his veto power, can weigh in, too.

Walker vetoed about half of the money set aside by the Legislature for dividends in 2016. He said earlier this week that a $1,600 PFD is near the limit of what the state can sustainably pay.

The finance committee incorporated the $1,600 dividend into its new budget proposal released Thursday — a rewritten version of the House's budget that passed that chamber earlier this week.

The new Senate plan was drafted by the finance committee's co-chairs — Lyman Hoffman, D-Bethel, and Anna MacKinnon, R-Eagle River — and other members who lead subcommittees responsible for individual agency budgets.

The Senate's mostly Republican majority has often cited the need for spending cuts in response to Alaska's budget crisis. But it's now proposing to set aside almost the exact same amount of cash that the largely Democratic House majority did for state agencies, schools and other expenses.

One major change is that the Senate's spending plan includes about $73 million less in unrestricted general funds for the state health department. But that cut is offset by the committee's proposal to spend close to $200 million on cash tax credit payments owed to small oil companies — more than $100 million above the level budgeted by the House.

MacKinnon, one of the finance committee's co-chairs, pointed to a legal formula that lawmakers have used as a guideline for budgeting those tax credit payments — a formula that the House reinterpreted this year to suggest lower payments.

"You see us placing on-budget things that were off-budget," she told reporters at a news conference.

Thursday's other major development was the Senate's plan for schools.

The proposal came two months after the House passed HB 287 — the legislation aimed at separating schools spending from the state's broader budget fight.

Alaska's budget process has seen delay and gridlock over the past three years as lawmakers have tried to fix the state's massive deficit.

In the process, school districts have faced prolonged uncertainty about how much money they'll get from the state — forcing some of them to issue layoff notices to teachers, then, in some cases, revoke them.

The largely Democratic House majority wanted to fix that problem by putting the more than $1 billion for public schools into legislation — HB 287 — that's separate from the state's broader annual spending plan.

The legislation passed the House 32-5 in a Feb. 7 vote.

But a separate vote on the same day, the House failed to withdraw the necessary cash from a state savings account that was needed to pay for the majority's plan.

Opposition from minority Republicans left the House majority without the support needed to tap into that account, the Constitutional Budget Reserve, since it can only be accessed with 30 votes in the 40-member House.

The Senate, after two months, released a rewritten version of the House's proposal Thursday.

Instead of spending next year's schools cash from the budget reserve account, the finance committee is proposing to spend it from the state's general fund, which takes a simple majority vote.

It's also offering to set aside money for a second year, to give school districts certainty about their budgets through mid-2020.

But that second year's worth of cash would come only if the House agrees to a separate bill — one to establish a long-term framework for using the $64 billion Permanent Fund's investment earnings to help fill the state's deficit.

Senate leaders want that legislation, Senate Bill 26, to pass to give Alaskans more certainty about how the state will balance its budget in after this year.

But the bill would also provide for smaller dividend checks than the traditional legal formula that lawmakers used to set PFD amounts for decades. And House majority members argue that it's unfair to ask constituents to accept smaller payments to help balance the budget if oil companies aren't also asked to pay higher taxes — or if lawmakers haven't approved a broad-based tax that asks more of high-income Alaskans.

The Senate majority has, so far, opposed increased oil taxes or levying a new personal income tax, leaving SB 26 in limbo. But Seaton, the House Finance Committee co-chair, suggested that he's still skeptical about voting for the legislation unless it's accompanied by other measures.

The House will be introducing new oil-tax legislation Friday, he said.

"Reforming oil taxes is really a necessity to diversify or stimulate our revenues at all," he said.