Alaska Senate approves budget with $3,000 dividend, rejects most of Dunleavy’s cuts

JUNEAU — The Alaska Senate approved an $11.6 billion state operating budget in a 19-1 vote Wednesday, moving the Alaska Legislature one step closer to a session-ending budget deal.

The Senate proposal now goes to the House, which is expected to reject it, opening negotiations for a compromise that will then go to Gov. Mike Dunleavy for his approval or veto.

“We have more steps to go before we conclude our budget for this session,” said Sen. Bert Stedman, R-Sitka, co-chairman of the Senate Finance Committee and the chief figure behind the drafting of the operating budget.

When the House and Senate begin negotiations on a compromise, one of the biggest sticking points will be the amount of this year’s Permanent Fund dividend. The Senate budget includes a $3,000 dividend; the House budget contains enough funding for a $1,284 dividend. Critically, the Senate budget sets spending for a dividend without providing funding for that dividend. The Alaska Constitution requires lawmakers to pass a balanced budget.

“We’ve got a hole in the boat of about $1.2 billion,” Stedman said, adding that he expects the situation to be resolved in a compromise with the House.

The deficit led Sen. Jesse Kiehl, D-Juneau, to cast the lone no vote against the budget.

“Passing this budget unbalanced is a pass on the hard questions we need to answer,” he said.

Sen. Chris Birch, R-Anchorage, attempted to cut the dividend to $1,200 per person, an act that would have resulted in a balanced Senate budget.

“We simply can’t afford a $3,000 dividend,” Birch said, but most senators objected to that point of view.

Sens. Mike Shower, R-Wasilla, and Bill Wielechowski, D-Anchorage, said Birch’s move would cause the state to violate the Permanent Fund dividend payout formula already in state law. (That formula has not been followed by the Legislature or governor since 2016.)

“The right way is not to just pick our own number and do what we want,” Shower said.

Birch’s amendment was defeated 17-3, with only Birch, Kiehl and Sen. Natasha von Imhof, R-Anchorage, voting in favor.

Stedman and von Imhof each said that if the dividend is ignored, Alaska has a $700 million surplus.

Because of the dividend, the Senate’s budget is $200 million higher than the $11.4 billion budget approved by lawmakers last year. That figure conceals significant cuts to state services, however.

“We’ve got the biggest budget reductions that I ever can remember,” Stedman said, adding that they may be the largest year-over-year reductions in state history.

Direct state spending for services is down $259 million, according to figures from the nonpartisan Legislative Finance Division. That’s only $2 million less than the House’s budget but $735 million more than the cuts proposed by the governor in February.

Most of those cuts were from the state’s budget for health and social services, where state support is down $142 million, or about 12.4%. Medicaid spending, included within that figure, is down $83 million. The Senate budget also cuts $44 million from the Alaska Marine Highway System and $5 million from the budget of the University of Alaska. The governor proposed steeper cuts to those programs.

There are no cuts to K-12 education. Lawmakers passed funding for 2020 last year, and neither the House nor the Senate have changed that amount.

“We made that commitment a year ago, and we’re not changing that,” Stedman said.

The budget includes full funding for the state’s school bond debt reimbursement program. Various municipalities have warned that reducing funding for that program, as suggested by the governor and the House, will result in higher property taxes.

The governor had also proposed diverting petroleum property taxes and fisheries taxes from municipalities to the state. The Senate has rejected those transfers, as has the House.

With minority Democrats involved in this year’s budget process from the start — Democrats even led two budget subcommittees — most of the minority voted to approve the budget.

“I’m not going to let the perfect get in the way of the good, and there’s a lot of good in this budget,” Wielechowski said.

One provision in the budget calls for sweeping $12 billion from the unprotected portion of the Alaska Permanent Fund to the constitutionally protected portion. Lawmakers last year placed limits on spending from the Permanent Fund, and Stedman said the sweep would not only lock the door on spending over those limits, it would weld that door shut.

In a press conference Wednesday evening, Stedman said the House and Senate now have two weeks remaining before the limit of the regular legislative session.

“We’ve got two weeks,” he said. “In political time, that’s a long time.”

Senators made three budget amendments Wednesday before final passage of the budget:

• The Senate unanimously approved an amendment from Wielechowski to add $800,000 to the state’s senior benefits program. Earlier this year, the state warned that a funding shortfall would cause some recipients to miss payments. The addition would prevent a similar occurrence next year.

• The Senate voted 16-4 in favor of an amendment from Sen. Donny Olson, D-Golovin, that asks the state to immediately pay $20 million appropriated last year to school districts. The amount was a one-time grant above the state’s formula for school funding this year. The governor has asked the Legislature to reverse the grant and has withheld the payment. Lawmakers say they are not willing to do so. A lawsuit filed Wednesday asks the state to immediately pay the $20 million.

• The Senate unanimously approved a technical amendment that reverses a 50% cut in the travel budget for veterans services.