Alaska House approves major increase in state spending, including $2,600 payments to Alaskans

JUNEAU — The Alaska House of Representatives voted Saturday to turn an oil price surge into money for K-12 schools, tax credits for oil drillers and and $2,600 payments for Alaska residents.

The House voted 25-14 to send a $7.7 billion state operating budget proposal to the state Senate, which is developing its own plan. The two plans, which set spending for Alaska services starting July 1, will be combined into a compromise plan and sent to Gov. Mike Dunleavy later this spring.

The House plan is much larger than the one the Alaska Legislature passed last spring. If spending had been held constant, lawmakers would have been considering a base budget of $5 billion.

Dunleavy had proposed a smaller spending increase, reflected in a proposed budget of $6.2 billion.

“Yes, the budget is larger than last year, but I think it’s not due to any one group. We’ve all had a hand in that,” said Rep. Neal Foster, D-Nome and co-chair of the House Finance Committee.

Oil prices have surged since the Russian invasion of Ukraine in late February, and the state expects more than enough revenue to pay for the bolstered budget. The latest prediction from the Alaska Department of Revenue expects $8.3 billion in the fiscal year that starts July 1.

The Department of Revenue has also increased its estimate of revenue in the current fiscal year by $2.3 billion.

The budget puts $2.2 billion — some from the current fiscal year and some from the next — into the Statutory Budget Reserve, a savings account. Lawmakers said that as the budget process continues, some of the saved money could instead be earmarked for the state’s construction and renovation budget, known as the capital budget. That budget has not yet been written.

The biggest addition to the operating budget passed Saturday is a second year of K-12 school funding. The House plan contains money for both the 2022-23 school year and the 2023-24 school year, at $1.2 billion per year.

The House is considering separate legislation to increase the state’s per-student funding formula. If that bill fails to pass, the House budget would distribute a $57 million one-time payment to K-12 schools.

House Minority Leader Cathy Tilton, R-Wasilla, opposed the budget and said there’s no provision requiring that money to be spent in classrooms.

That’s correct, said Rep. Harriet Drummond, D-Anchorage. But schools are dealing with rising health care, maintenance and heating costs, Drummond said, making the additional money necessary.

As an example, Foster mentioned the tiny St. Mary’s School District in Western Alaska. It would receive about $148,000, Foster said, and he could see most of that money being used to cover the increased cost of heating fuel.

Dunleavy proposed a Permanent Fund dividend of about $2,600, plus an additional supplemental payment of $1,250. The House instead chose a $1,300 dividend plus an “energy rebate” of $1,300.

“We expect this to be paid out at the same time as the dividend, for a total payout of nearly $2,600,” Foster said.

That system was criticized by members of the House’s Republican minority, who asked why the Legislature wouldn’t simply pay a $2,600 dividend.

Members of the House’s coalition majority, including Speaker Louise Stutes, R-Kodiak, have said they do not want to create the perception that future dividends will be that high.

Minority Republicans also objected to the size of the payout, saying there is enough money available to pay a $4,200 dividend, the amount called for under a distribution formula in state law.

That formula has not been used since 2016, and lawmakers have set the dividend by fiat each year since then. Legislators haven’t reached consensus on a new formula, leading to annual arguments over the size of the payout.

Rep. Sarah Vance, R-Homer, said she has heard overwhelming testimony from her constituents in favor of the traditional formula as long as it remains on the books.

“I don’t care if it’s $100, $1,000 or $5,000,” she said.

The budget spends about $409 million to buy back oil and gas tax credits held by drilling companies and their financiers. Rep. Sara Rasmussen, R-Anchorage, had proposed buying back all $532 million outstanding credits, but that buyback was reduced in a floor amendment.

The budget also adds $2 million to a fund that pays for lawsuits against the federal government and sets aside more than $5 million so the state can take over a construction permitting process currently run by the federal government.

The University of Alaska would receive additional funding for a variety of programs, including doctor training, drone experiments and research into heavy oil.

Members of the coalition majority said that while they don’t support everything in the budget, they felt there was more to like than dislike.

“Only a king or queen could write the exact budget that they want. There’s 61 of us involved in this process, and given that reality, I’m happy to support this budget,” said Rep. Andy Josephson, D-Anchorage.

Members of the Republican minority were generally opposed, but Rep. George Rauscher, R-Sutton, suggested that his vote was as much a negotiating tactic as actual opposition.

“This vote today is part of a negotiation process which we have with the Senate,” he said.

Minority Reps. DeLena Johnson, R-Palmer; Bart LeBon, R-Fairbanks; and Steve Thompson, R-Fairbanks, joined the majority in support of the budget, as did independent Rep. Sara Rasmussen, R-Anchorage. Rep. Kevin McCabe, R-Big Lake, was excused absent.

A procedural vote allowing the budget to take effect July 1 failed to garner enough votes; the House will re-vote on the issue before the final session. The House also failed to pass the “reverse sweep,” which prevents several program-specific funds from being automatically drained into the state’s Constitutional Budget Reserve at the start of the fiscal year. Another vote is possible on that topic.

The Senate Finance Committee is developing the Senate’s version of the budget and has a hearing scheduled for Monday morning.