With Alaska’s legislature and governor deadlocked, the 2021 PFD will be delayed

JUNEAU — Two weeks into their third special session of 2021, members of the Alaska Legislature say they do not know when this year’s Permanent Fund dividend will be paid, do not know how much it will be, and don’t know whether they can come up with a formula for future payments.

The dividend is ordinarily paid in October, but that almost certainly will not happen this year.

“If the Legislature would like a traditional October distribution, we will need to know by Aug. 31,” said Genevieve Wojutsik, an employee of the Alaska Department of Revenue, speaking on behalf of the Permanent Fund Dividend division.

It’s virtually impossible for the Legislature to meet that deadline.

Earlier this year, Gov. Mike Dunleavy vetoed a dividend that passed the House and Senate, and though the governor has asked legislators to come up with a replacement, they haven’t been able to do so.

Dunleavy and some legislators even disagree about the size of the vetoed dividend. The governor’s office said at the time that it was $525, but after a subsequent legal ruling, legislative budget officials said it was $1,025.

The 2020 dividend was $992. Right now, there is zero dividend for 2021.

The Alaska House is so divided that it hasn’t held a full meeting since Aug. 20, and the Alaska Senate has been stymied by discord between rank-and-file members and the leaders of its finance committee.

While lawmakers say they are still optimistic about resolving their disagreements, there is a rising chance that this year will be the first year since 1982 without a Permanent Fund dividend.

“It’s a distinct possibility, is what I’ve been saying,” said Speaker of the House Louise Stutes, R-Kodiak.

“It is not the direction that the House majority would like to go,” she said.

How much should be spent from the Permanent Fund?

There isn’t a dividend amount right now because legislators disagree about whether they should spend extra money from the Alaska Permanent Fund.

The Permanent Fund’s investment earnings account for two-thirds of the state’s unrestricted revenue in the current fiscal year. Oil, long the state’s most important revenue source, accounts for only about a quarter, following years of low prices and falling production.

In 2018, lawmakers voted to cap the amount of money that can be spent annually from the Permanent Fund and set up a regular transfer from the fund to the state treasury.

With that transfer, oil taxes and other taxes, Alaska has a small surplus after paying for all budgeted state services. But that doesn’t account for the Permanent Fund dividend.

Members of the predominantly Democratic coalition that controls the state House have proposed spending $400 million of the surplus, plus another $330 million from a state savings account, on a dividend of about $1,100 per person.

Members of the House’s Republican minority previously proposed breaking the 2018 cap in order to pay a larger dividend, as did the governor.

The fund has gained almost 30% in value over the past 12 months and now stands at more than $82 billion.

Members of the minority and the governor say that gain means the fund can support extra spending.

Members of the majority and some members of the minority disagree. They say those gains must be saved and reinvested so the state has more money to spend in the future.

Complicating the situation, Dunleavy spokesman Jeff Turner said the governor’s administration believes the House majority’s preferred savings account has been drained and is unavailable for spending.

Members of the House majority said a recent court ruling may imply otherwise, and a lawsuit could be in the offing if the disagreement continues.

In the Senate, top members of the powerful Senate Finance Committee also oppose spending additional money from the Permanent Fund.

Their position matters, because any dividend proposal must be approved by their committee before it receives a vote of the full Senate.

Sen. Bert Stedman, R-Sitka and the co-chair of the committee, said a larger dividend requires additional revenue to pay for it, and he hasn’t seen a serious revenue proposal to date.

Future dividends also are a factor

In both the House and Senate, the dispute over this year’s amount is entangled with negotiations over a formula that could be used to set dividends in 2023 and beyond.

In May, Dunleavy proposed a new formula that would constitutionally guarantee dividend payments, if voters approve the change in the 2022 general election.

On its own, the formula creates a significant deficit, and lawmakers have been thus far unwilling to advance it. New formulae proposed by individual lawmakers also have not advanced.

An eight-member bipartisan, bicameral legislative working group concluded at the start of this month that the Legislature should work toward a formula similar to the one proposed by the governor, but only under certain conditions.

Sen. Shelley Hughes, R-Palmer and a member of the working group, said she sees “five components” to the fix: a 2021 dividend amount, some kind of new revenue measures, a change to the state’s existing spending cap, some kind of constitutional amendment on the dividend, and a change to the existing formula in state law.

Senate Minority Leader Tom Begich, D-Anchorage, and Rep. Geran Tarr, D-Anchorage, are planning to introduce new tax legislation with an eye toward satisfying one of the five components.

Begich is proposing to eliminate a corporate income tax exemption that applies to large companies like Hilcorp, he said.

Tarr is planning to propose a statewide sales tax and an increase in the state’s minimum oil tax.

But because the House has lacked a quorum for more than a week, she hasn’t been able to formally introduce her legislation.

Stedman noted that Democratic-proposed legislation could encounter resistance from Republican lawmakers, but other lawmakers said that if there is true interest in progress on the dividend, that resistance will be minimal.

Legislators on both sides of the political aisle said it would be helpful if Dunleavy introduced a tax bill of his own. Right now, said Hughes, Republicans are at political risk if they support a tax bill but it later fails to pass.

In addition, said fellow working group member Sen. Jesse Kiehl, D-Juneau, it would be a sign that the governor may not veto a particular piece of legislation.

“It builds trust,” he said.

There’s no guarantee that Dunleavy’s support would help matters. Lawmakers previously said that if the governor introduced a bill allowing consideration of a 2021 dividend, it would allow progress on future payments.

So far, that hasn’t happened.

With the special session almost halfway over, lawmakers generally agree that any new formula will not be completed soon.

Some suggest the work can be finished next year, when the Legislature convenes in January for its regular session. Others say a fourth special session, sometime later this fall, could be necessary.

Correction: An earlier version of this story incorrectly reported that Rep. Geran Tarr would propose a reduction in the per-barrel tax credit. She is proposing an increase in the state’s minimum oil tax.