Alaska moves closer to government shutdown as special legislative session ends without fix to state budget

JUNEAU — A special session of the Alaska Legislature ended late Friday without a fix to a state budget that Gov. Mike Dunleavy has called “defective” and unconstitutional.

Minutes after members of the state House adjourned on Friday without solving the issue, Dunleavy issued a proclamation calling lawmakers into another special session at 10 a.m. Wednesday. The goal is to pass a state budget before July 1.

If there is no state budget by that date, thousands of state employees will be laid off and critical services will shut down.

The current problem is one of timing.

Under the Alaska Constitution, bills take effect 90 days after enactment unless two-thirds of the House and two-thirds of the Senate approve an earlier date. The Senate agreed to start the budget July 1, but in the House, Republican opposition meant the “effective date clause” failed.

Twenty-seven members of the 40-person state House needed to approve the clause, but only 23 voted for it. One legislator was absent, and 16 members of the House’s Republican minority voted against it.

House Minority Leader Cathy Tilton, R-Wasilla, said members of the minority want to see more action on a comprehensive state fiscal plan before committing their votes to the clause and ending the shutdown.

Rep. David Nelson, R-Anchorage, voted against the effective date clause and said that he could vote for it if he sees action on a Permanent Fund dividend constitutional amendment proposed by the governor and action on a tighter state spending cap, a proposal also backed by Dunleavy.

Other minority members offered different opinions. Rep. Mike Prax, R-North Pole, said he wants to see the dividend funded only from the Permanent Fund, rather than through a mix of accounts, as in a compromise budget released Sunday by a House-Senate committee.

House Speaker Louise Stutes, R-Kodiak, said negotiations continue to take place between the minority and the 21-member coalition that leads the House. The Democratic minority in the Senate and the Senate’s predominantly Republican majority are also participating.

While those negotiations took place in the final week of the special session, most lawmakers left the state Capitol for their home districts.

By Friday afternoon, even if an agreement had been reached, there weren’t enough House legislators to make the vote. About 3 p.m., a handful of House legislators adjourned for the day, guaranteeing that the state remains on track for a government shutdown.

Members of the House majority said they believe Dunleavy is deliberately worsening the problem in order to encourage acceptance of a larger Permanent Fund dividend.

“The craziest thing about this is the governor is essentially pitting a government shutdown versus a bigger PFD and he’s working with certain legislators in the building,” said Rep. Bryce Edgmon, I-Dillingham.

The Legislature’s compromise budget includes an $1,100 dividend, the maximum that the House majority believes can be paid without violating a 2018 law that limits spending from the Alaska Permanent Fund.

A separate law calls for a much larger dividend — in the range of $3,500 — and even though a 2017 Supreme Court decision has called that law into question, it still has supporters in the Legislature.

Earlier this year, Dunleavy suggested rewriting the dividend law and placing it into the Alaska Constitution. Doing so requires a supermajority vote in the Legislature and approval in the 2022 general election. That means the soonest it could take effect is 2023, but many Republicans (and the governor) support a payout this year of about $2,350, the amount that would be paid if the amendment were already in effect.

Paying that dividend would require violating the 2018 spending limit, but the fund contains enough money to do so. It hit a record $81 billion earlier this month.

A small majority of lawmakers are nevertheless reluctant to violate the spending limit because the Permanent Fund’s investment earnings now make up a majority of the revenue used to pay state services. The more money that is taken out of the fund now, the less money the state will have to spend in future years. Some legislators also worry that if the spending limit is broken once, that will set a precedent for future breaks.

Shortly before the failed budget vote, an advocacy group run the governor’s office sent an email urging Alaskans to write to their lawmakers and tell them to vote against the budget containing the $1,100 dividend.

The governor’s office later said that email was a mistake and does not reflect the governor’s opinion, but by then, legislators had received hundreds of emails, and members of the House majority are skeptical that the message was sent by accident.

In a Friday morning radio interview, Dunleavy praised lawmakers who voted against the effective date clause and said some legislators want to “blame this on the governor because that’s a convenient excuse.”

“Their job is to convince a certain number ... of legislators that the bills are putting forward have merit. They failed to do that. That’s on them. But they don’t want to take responsibility for that,” Dunleavy said.

The House majority has offered a handful of legal opinions that suggest there are ways around the effective date clause. Stutes said the governor also has the ability to temporarily borrow money to cover the cost of government if a budget isn’t ready until after July 1.

But through a spokesman, Dunleavy said he is simply following the constitution, whose plain language includes the requirement for the effective date clause.

In 1996, when the Alaska Senate failed to approve the clause, then-Gov. Tony Knowles called lawmakers into special session to fix the problem and other outstanding issues. Knowles said he doesn’t recall the effective date clause being a headache at that time.

The governor’s position hasn’t satisfied the majority, which has asked Dunleavy to urge the minority to vote for the clause. So far, he has only made a general appeal to the Legislature as a whole.

“The Governor has made it clear: He does not intend to insert himself in the Legislative process,” said Corey Young, a spokesman for the governor.

“His hope remains that the Legislature will fix the lack of a July 1 effective date that creates a constitutional impairment in the budget bill that was passed,” Young said.

Tilton said the governor has not spoken to the minority about the issue and isn’t working with them to advance his ideas.

“I want to say the governor is not to blame for this at all,” said Rep. Mike Cronk, R-Tok and one of the lawmakers who voted against the effective date clause. “I accept my vote, our caucus accepts their vote. This is a House issue right now.”

Even if the House approves the effective date clause, several other clauses require a three-quarters vote. Thirty of the House’s 40 members and 15 of the Senate’s 20 members would have to agree to those clauses, and thus far, neither branch of the Legislature has done so.

Without those clauses, the budget remains partially unfunded, and the dividend would drop from $1,100 to about $525. The state’s subsidy for rural electrical power will end, causing home electric bills to rise for about 85,000 Alaskans and thousands of Alaska high school students will lose scholarships promised by the state.