New compromise plan for Alaska’s state budget puts pressure on supporters of a large Permanent Fund dividend

JUNEAU — The Alaska Legislature is scheduled to vote Tuesday on a compromise state budget that will avert a government shutdown, pay $1,100 to eligible residents and fund construction projects across the state.

Supporters of a larger dividend are outraged by the compromise and say they’re being threatened with major consequences unless they support an amount they oppose.

Unless the House and Senate approve the compromise with a supermajority (30 of 40 members in the House and 15 of 20 in the Senate), the dividend drops from about $1,100 to about $525 and a variety of projects will shut down for lack of funding.

If the compromise fails to get a simple majority of votes in both the House and Senate, Alaska will be on track for a government shutdown July 1, and state workers will receive warning notices later this week.

It wasn’t clear on Monday what the final tally will be.

Sen. Roger Holland, R-Anchorage, is one of the lawmakers who supported a larger dividend and said he will vote no and may quit the Senate’s Republican-led majority.

“I struggle with staying in the majority, and I feel like ‘no’ is not a strong enough statement,” he said.

Sen. Bert Stedman, R-Sitka and one of the compromise’s authors, was unfazed: “It’s a non-binding caucus. There’s no agreements. You’re there of your own free will and accord. You can come and go as you want,” he said.

In addition to the effects on the dividend, a variety of programs will be unfunded, including the state’s subsidy for home electricity in rural Alaska. High school students, promised scholarships by the state, will not receive them.

Tens of millions of dollars in construction projects — principally in the Matanuska-Susitna Borough — will be paused for lack of money, including $10 million for road repairs in the Mat-Su, tree cutting for firebreaks to stop wildfires, and repairs to Houston Middle School, which has been closed since the 2018 Southcentral earthquake.

Until the last days of work on the compromise budget, many of those programs were paid for with money from a variety of sources. Now, they’re funded from two budget reserve accounts and need agreement from three-quarters of the House and Senate.

Most members of the House minority favor a Permanent Fund dividend larger than the one included in the compromise budget. But if they vote in opposition, they shrink the dividend and remove money from projects they want.

“We saw they were already funded; it was a fund source change aimed at twisting an arm,” said House Minority Leader Cathy Tilton, R-Wasilla.

Rep. Geran Tarr, D-Anchorage and a member of the majority, also favors a larger dividend. In a post on social media, she said the move is “so disappointing. Instead of actually trying to work together in a bipartisan way, budget negotiators have tried to strong-arm the House Republicans into a three-quarter vote.”

“One group will be happy with this: the very wealthy people in the Privileged People’s Club, oops, I mean the Legislature,” she wrote.

Two years ago, members of the House minority attempted to use the budget reserve vote as leverage to increase the dividend. It didn’t work, but the dispute between majority and minority left several programs temporarily without funding.

Speaker of the House Louise Stutes, R-Kodiak, said the impacts of the 2019 dispute fell heaviest on rural Alaska, which relies on the Power Cost Equalization program to subsidize the cost of electricity at home. Even in a normal year, that program requires a three-quarters supermajority vote to stay funded, and so the redesign of the budget this year spreads around the potential pain.

“From my view, what the conference committee did was level the playing field,” she said.

The state has enough money to increase this year’s dividend if legislators break a limit on annual spending from the Alaska Permanent Fund.

Senate President Peter Micciche, R-Soldotna, said he’s OK with breaking that limit one time, this year. The fund has performed extraordinarily well — it’s now above $81 billion — and the state is still recovering from the COVID-19 pandemic.

But the Senate is split almost exactly down the middle on the issue, with Republicans and Democrats on each side of the divide, and on Monday, it wasn’t clear how the votes would turn out.

“There’s no monolithic structure here,” said Senate Minority Leader Tom Begich, D-Anchorage.

In the House, members of the Republican minority have a variety of opinions, but most have supported breaking the limit to pay for a larger dividend.

The House’s coalition majority is adamantly opposed to the idea. Preserving the limit is the group’s founding principle, penned in ink on the wall of Stutes’ office since the start of this year’s session.

“I can definitely say that our group does not want to overdraw,” said Rep. Neal Foster, D-Nome, though he acknowledged that he is personally walking a fine line because his constituents want a large dividend.

Stutes said that if the House majority were to vote in favor of breaking the limit, “It won’t end up being a one-time overdraw.”

Over the past few years, the Legislature has spent almost $16 billion in savings. Stedman said that figure makes him ill. He, like Stutes, is unwilling to spend more than the limit.

But Stutes said the House majority could change its position if lawmakers can agree on a long-term fiscal plan including changes to the dividend formula.

Gov. Mike Dunleavy has proposed a constitutionally guaranteed dividend with a new formula and a firmer limit on spending from the Permanent Fund.

He has also called a special session for August, and lawmakers say that Dunleavy’s proposal — coupled with as-yet-unpublished tax increases or spending cuts — could create a long-term plan that would break the impasse over this year’s budget.

“We still have opportunity. We have days left in this session, and we have another session in August. We still have an opportunity to make the adjustments that need to be made,” Tilton said.

Correction: The compromise budget includes funding from two reserve accounts, not just the Constitutional Budget Reserve.