Senate passes budget with $5,500 cash payments to Alaskans that could drain state savings

JUNEAU — The Alaska Senate on Tuesday approved a budget that would require the state to dip into savings to cover $5,500 in cash payments to Alaskans, even as the state faces a revenue windfall due to high oil prices.

The ballooned Senate budget includes a full statutory Permanent Fund dividend and supplemental checks meant to cover higher energy costs. Supporters of those payments included a mix of Democrats and Republicans, who voted in favor of them despite the possible ramifications: draining the state’s savings, leaving no financial cushion if oil prices plummet, and scrapping a plan to direct state funds to education costs for the next fiscal year.

The budget, which includes money for both operating costs and capital projects, amounts to more than $9 billion in state spending and was adopted by the Senate in a 15-5 vote, sending it to the House. The House can either concur with the budget or reject it — the more likely scenario, according to legislative leaders. That would force a conference committee where lawmakers from both the House and Senate try to find middle ground.

The House passed an operating budget last month that included around $2,600 in cash payments to Alaskans. House Speaker Louise Stutes, R-Kodiak, who leads a coalition House majority that includes Democrats, Republicans and independents, was quick to criticize conservative lawmakers in the Senate for voting for a budget that could reach deeply into state savings.

“We have all these conservative people that have been nickel and diming different bills, saying, ‘We’ve got to save money,’” Stutes said Tuesday evening. “The House — our anticipation was to put a lot of money in a savings account. Well, that just got shut down in the Senate. All these conservative people just spent all our money, all our savings account, and money that we haven’t gotten yet.”

She said the House would likely vote on whether to concur with the budget Wednesday evening or Thursday morning.

“From my experience here, I would guess that it’s probably going to go to conference,” she said.

Senate President Peter Micciche, R-Soldona, was more optimistic about the outlook for state savings, saying that the budget could undergo changes before it is finalized.

“The reality of it staying in its final form is essentially nonexistent,” Micciche said. “Would I like to see additional money in savings than what we have in this budget? I do. But we have a long way to go here in the next week and a half, and I believe that there will be solutions to that concern.”

The Legislature has until May 18 to pass a budget, or lawmakers may be forced into a special session.

The Senate vote on the budget came after two days of discussions on nearly 50 amendments. On Tuesday, senators voted to add to the budget $150 million for a deep sea port in Nome, $200 million for the Port of Alaska revitalization project in Anchorage and $30 million for road improvement projects in the Matanuska-Susitna Borough. The three items were packaged into a single amendment that passed in a bipartisan 12-8 vote.

The Nome and Anchorage port funding was a top priority for House Finance Committee co-chairs Kelly Merrick, R-Eagle River, and Neal Foster, D-Nome.

The cash payments approved by the Senate include $1,300 in one-time energy relief checks and a full statutory $4,200 Permanent Fund dividend. That would amount to $2.7 billion in state spending on the dividend and $840 million on energy relief checks.

The budget additions — including the dividend increase — obliterated the Senate’s plan to forward fund education costs for the 2024 fiscal years to the tune of $1.2 billion. Some lawmakers also warned that they could wipe out the state’s savings and leave empty coffers ahead of the next legislative session, especially if oil prices fall from the current prediction of around $100 per barrel.

Lawmakers who supported the larger dividend said it was mandated by the existing statute and argued that in a time of rising costs, Alaskans need the extra cash.

If the budget remains unchanged, the state would use the Statutory Budget Reserve to cover spending that exceeds the state’s revenue. The most recent revenue forecast predicted that the state would have $8.3 billion to spend in the coming fiscal year. The Senate appropriated around $9.3 billion — meaning around a billion could come from state savings if the oil prices hold steady.

If oil prices drop, the state’s savings could be completely drained by the end of the fiscal year. The most recent revenue projection was based on a $101 price per barrel of oil. If the price drops below around $93 per barrel of oil, the Statutory Budget Reserve would be emptied, according to figures provided by Senate Finance Committee co-chair Bert Stedman, R-Sitka.

In that case, lawmakers could dip into the Constitutional Budget Reserve, which would require support from three-quarters of the House and Senate. If oil prices drop below around $74 per barrel, the Constitutional Budget Reserve would also be emptied.

“No one can predict the price of oil,” said Sen. Natasha von Imhof, R-Anchorage. She was one of five senators who voted against adoption of the budget. “To create a budget that depends on $100 per barrel in my opinion is reckless.”

“There are consequences with the choices made today on this floor,” said von Imhof. “What does a fistful of cash get you if you are sitting on the tundra, wishing someone would come pick you up? Or if you’re calling a state trooper after being assaulted and no one comes? Or if you’re trying to pay competitive pay for a teacher in rural Alaska?”

Over the course of budget debates, Stedman again and again pointed to the dangerous prospect of spending down the state’s savings.

“The condition that we’re leaving the next Legislature in looks to me to be pretty dismal. They will have no savings to fall back on,” Stedman said. “I wish the next Legislature luck. It’s unfortunate that we’re leaving them in this type of condition.”

Senate Minority Leader Tom Begich, who voted against the budget, used words like “shocking” and “unreasonable” to describe the decision to pass a budget that spends more than the state will rake in this year, despite higher oil prices brought on by the war in Ukraine.

Senators voting against the budget were Begich, D-Anchorage; Lyman Hoffman, D-Bethel; Jesse Kiehl, D-Juneau; Josh Revak, R-Anchorage; and von Imhof, R-Anchorage.

The backdrop for the higher dividend in the budget is a failure by the Senate to pass a measure that would change the statute governing future dividend calculations. The Senate attempted to set a statute that would require half the revenue generated by the Permanent Fund interest to go toward state spending, and the other half to be allocated toward dividend checks. The effort failed to garner enough votes to pass the Senate, and lawmakers have indicated it is likely doomed for the remainder of the session.

“That would actually require people caring about the future. I’m not sure that they do,” said Begich.

“We will continue to elect people whose only platform is a full statutory PFD until we find a solution, a long-term sustainable fiscal plan,” Micciche said.

“I’m most frustrated by the fact that we can’t land a bill that moves us forward on solving the PFD issue,” Micciche said. “Budget stuff? That’s little stuff. We’ll work it out.”