Breaking the record for most days in session, the Alaska Legislature will not pass a new PFD formula this year

JUNEAU — The Alaska Legislature’s fourth special session will end Nov. 2 without a solution to the state’s perennial struggle over the Permanent Fund dividend, and legislative leaders say they are leaving the session further apart than when they started.

That means no bonus dividend this year, as Gov. Mike Dunleavy had requested, and it likely means another protracted struggle when the Legislature reconvenes in January.

Talking to reporters on Thursday, a visibly frustrated Dunleavy said the Legislature is to blame for the session’s failure, a conclusion lawmakers disagree with.

“There’s always a series, a never-ending series of reasons why we don’t seem to get things done down here in the Legislature,” Dunleavy said. “So we’re going into a new year, and we’re not going to have another special session after this. It’s pointless. There’s no reason to do it.”

Senate President Peter Micciche, R-Soldotna, said he is unwilling to assign blame and that the House, Senate and governor succeed or fail together.

“We need a better team effort. There’s no question in my mind that it needs to stop being us in the Legislature versus the administration and we need to be one team pulling together on a final result,” Micciche said.

Senate Majority Leader Shelley Hughes, R-Palmer, said she had more hope earlier in the year but now believes “nothing short of a miracle” will allow the Legislature to come up with a new formula this year to reliably pay the annual Permanent Fund dividend.

“I would say that we have actually gotten further apart,” said House Minority Leader Cathy Tilton, R-Wasilla.

Speaker of the House Louise Stutes, R-Kodiak, said she doesn’t necessarily think lawmakers have gotten further apart — they didn’t have a chance to get together in the first place.

“It’s hard for me to say because there was no real conversation,” she said.

Members of the House and Senate expect the ongoing fourth special session of 2021 to end next week without another full meeting of either the House or Senate.

When the session ends, lawmakers will have been formally convened for 217 days, the most of any year since the creation of the Alaska Territorial Legislature in 1912.

Dunleavy has called two special sessions this year in an attempt to force action on a new dividend formula. The latest, officially known as the fourth special session, began Oct. 4.

The state House has held a handful of committee meetings and full floor sessions during the session, but the state Senate is so divided that it hasn’t been able to muster a quorum in almost a month and didn’t hold a single committee meeting until Thursday.

Tensions were high in the third special session, Micciche said, and they’ve only gotten worse in the fourth.

“With the fourth special session, it’s sort of like you’ve got a couple of pit bulls that you’ve got on a leash and you’re enticing them to get close together so that they can increase their animosity for one another,” he said.

He and other senators said the 20-member Senate is split into four “camps,” each defined by different dividend proposal. The House appears to be similarly divided.

The first camp prefers a “50-50″ formula like the one proposed by Dunleavy earlier this year. It would pay a 2022 dividend of about $2,650 if there are 630,000 recipients.

As currently proposed, a 50-50 formula would create a $965 million deficit next year.

That’s with North Slope oil prices at $63 per barrel. If prices average $80 per barrel for the next 18 months, that gap would shrink to about $450 million. Over the past month, prices have exceeded $80 per barrel, but it isn’t clear whether they will remain at that level.

Because of that gap, a second camp in the Senate supports new taxes or other revenue to pay for the 50-50 proposal. Preliminary estimates indicate a 2% state sales tax, similar to one used by South Dakota, would generate about $600 million in new revenue.

State officials have previously said that it will take a year to set up a statewide tax, meaning significant new revenue may be impossible before the fiscal year 2024 budget, which lawmakers will take up in January 2023.

A third camp argues that if the 50-50 formula creates a gap, it’s better to create a formula with a lower payout, eliminating the gap and the need for new taxes. That’s in line with what the Legislature has done as a matter of policy since 2016.

The fourth camp believes new revenue is needed but a formula may be larger or smaller than 50-50.

In the Senate, advancing a constitutional amendment requires 14 votes and advancing legislation requires 11. With four different camps, no particular idea has enough votes to advance, and within each camp, there are differences about technical issues.

With the Senate fractured, Stutes said there was no reason to call House lawmakers together.

“Why would we spend the money calling 40 legislators back to Juneau when we know it’s all for naught if the Senate’s not meeting?” she said.

Other legislators said the House is divided along similar lines as the Senate and did not expect to meet during the special session.

So far, members of the House’s coalition majority have rejected the idea of a 50-50 dividend without additional revenue, saying they support “the largest dividend that we can afford,” a policy Stutes reaffirmed Thursday.

The governor has proposed temporarily overspending from the Permanent Fund to close the deficit created by a 50-50 formula. In the long term, as-yet-unproposed budget cuts and the expected gradual growth of the Permanent Fund would close the gap, according to projections by the Office of Management and Budget, part of the executive branch.

Those projections haven’t convinced a majority of the Legislature. A dividend payout equivalent to the 50-50 formula has been repeatedly voted down.

Many legislators recall the way the state has gradually spent its available savings accounts, in part to pay for services and in part to pay for dividends. Those accounts are now exhausted, and reluctant legislators worry that the Permanent Fund will be next.

That concern has been intensified by the fact that Permanent Fund earnings are now the largest source of revenue for state services. Overspending now means less money for future dividends and services because there will be less invested in the fund.

Dunleavy acknowledged those concerns on Thursday but said Alaskans are suffering financially from the COVID-19 pandemic. Given record returns by the Permanent Fund and higher oil prices, it makes sense to send money to individual Alaskans, he said.

“We’re going to keep working hard on this,” Dunleavy said, “but in the end, this Legislature will have absolutely nothing to show for the special sessions.”