Alaska lawmakers are preparing to decide a billion-dollar ‘generational change’ in the next 4 weeks

JUNEAU — Last year, the Alaska Legislature let Gov. Mike Dunleavy decide how to spend more than $1.25 billion in federal coronavirus aid.

Many lawmakers regret that decision and are now scrambling to seize what seems like a second chance. The state of Alaska is receiving more than $1 billion in flexible spending money from the American Rescue Plan, and lawmakers want to keep control in their hands.

The debate over how to spend the money is looking like the defining issue of the last month of the Legislature’s regular session, multiple lawmakers said. It has overshadowed the traditional debates about the Permanent Fund dividend, slowed work on the state budget and — at least for one year — shelved persistent worries about a long-term revenue shortfall.

In a state that has slashed spending on forward-looking projects amid broader budget austerity, Senate President Peter Micciche, R-Soldotna, said the money could be used to retrain unemployed workers, develop infrastructure and prepare the state for the next decade.

“We really do have an opportunity to make a generational change in the economy of Alaska,” he said.

But there’s a timing problem: The legislative session ends May 19, and the federal government won’t publish rules for how the money can be spent until about May 10.

Because of that schedule, some state legislatures, including those in Wyoming and Mississippi, have deferred action until a special session later this year.

Lawmakers here don’t see that as an option — calling a special session requires two-thirds of the Legislature’s 60 members, and the leaders of both the House and Senate don’t know if they have the needed support.

“There are a lot of legislators that say, you know, we’re gonna be here for 121 days, that should be enough to get our work done. And so that is our target: Get our work done, and have this done within 121 days,” said Speaker of the House Louise Stutes, R-Kodiak.

On Tuesday afternoon, the House Finance Committee heard the first outline of a Dunleavy proposal to spend the money, including millions for infrastructure and business relief.

“These aren’t set in stone,” Neil Steininger, Dunleavy’s budget director, said about the proposal, and there were no details about what projects might be funded.

The expectation is that the Legislature has priorities of its own and will make significant changes.

Rep. Dan Ortiz, I-Ketchikan, asked whether some of the billion dollars might be sent to local governments to replace lost tax revenue.

“At this stage, we’re kind of at the ‘no bad ideas’ phase of this,” Steininger said.

Several lawmakers said it’s too early to consider specifics. Instead, they said, it makes sense to think of the coming debate as being between different “camps” or schools of thought.

Sen. Donny Olson, D-Golovin, said there are three of those:

• Spend the money on physical items — water and sewer pipes and plants, broadband infrastructure and school repairs.

• Spend the money on aid to businesses that have lost revenue during the pandemic.

• Spend the money on aid to individuals — things like grant programs for housing assistance or using it to pay for state programs, freeing state dollars for a larger Permanent Fund dividend.

The latter concept has gotten the most attention so far. On Tuesday, Steininger said that in the administration’s view, it is possible to use the entire billion dollars for “general fund offset” — in effect freeing that amount for the dividend.

That would mean a payment of roughly $1,600 per dividend recipient, based on last year’s number of applicants.

Rep. Sara Rasmussen, R-Anchorage and a member of the House Finance Committee, said the Legislature wants to keep more control over the state spending process than it had with last year’s CARES Act money.

As an example, she referenced $60 million spent by the Alaska Department of Administration on a pandemic-response program.

“We never really got a clear understanding of what the funds were used for,” she said.

Looking back at the CARES Act spending, Micciche said, “I think everyone could look back and say that perhaps we could have spent that a little differently, a little bit more efficiently, put a little more thought into it. Now we have that opportunity.”

Micciche and Stutes met Dunleavy on Tuesday morning to discuss the federal aid and other issues advancing in the Legislature.

Both legislators said afterward that there’s a general agreement that the federal money will not be used to permanently increase the size of the budget.

Each said — as did House Minority Leader Cathy Tilton, R-Wasilla — that the state still faces a critical long-term problem. It does not have enough revenue to pay for both a traditional Permanent Fund dividend and currently budgeted services.

While legislative committees have been advancing proposals to change the dividend formula and reduce the problem, Micciche acknowledged that the federal aid has taken some of the momentum away from efforts toward a long-term fix.

“I mean, politicians, fundamentally, if you can avoid the tough decisions, that’s what many people want to do,” he said.

Micciche said the Senate majority would like to see the Legislature spend only some of the federal money during this legislative session and leave a large proportion — possibly half — to be allocated later.

Kentucky lawmakers took a similar strategy in March.

Micciche and Stutes said they are optimistic that lawmakers can reach an agreement on both the dividend and the federal funding before the end of the Legislature’s regular session on May 19.

“I feel really positive,” Stutes said. “It’s going to take a little dancing, but we know the tune. It makes me very hopeful to know we are all working together rather than against each other.”