Alaska Senate rolls out budget bill with a surplus, $1,300 PFD and a one-time school-funding boost

JUNEAU — The Alaska Senate rolled out its latest version of the operating budget Wednesday, which had a $90 million surplus, a $1,300 Permanent Fund dividend, and a $175 million one-time boost for public schools.

The 17-member bipartisan Senate majority caucus has insisted that lawmakers should not draw from state savings to balance the budget. Following gloomy revenue projections made last month, the House of Representatives’ spending plan — with a $2,700 dividend — was projected to create a $600 million deficit, which would further balloon to almost $800 million with additional capital expenditures announced Wednesday.

The Senate announced publicly Tuesday that it would cut funding in half in a bill that originally called for a $257 million permanent boost to public school funding, by reducing a boost to the Base Student Allocation, or BSA, formula from $1,000 to $500. But that quickly changed.

Most members of the bipartisan Senate majority expressed frustration behind closed doors with that $500 figure and pushed for a $175-million school funding increase — equal to a $680 BSA boost — which would match an amount supported by the House.

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A separate, and yet-unseen, revised version of a Senate bill to permanently raise the BSA was still being finalized Wednesday. If the Senate passes a permanent $680 BSA increase, the one-time school funding would be removed from the budget.

Sitka Republican Bert Stedman, who manages the Senate’s operating budget, said during a committee hearing Wednesday that a $680 boost to the per-student funding formula would be substantial for school districts. But it is far below figures supported by education advocates, who have said the state’s public school system is in crisis after years of flat funding and high inflation.

Increasing education funding has been one of the Senate majority’s top two legislative priorities this year. But the Senate’s draft spending plan looks set to clash with spending priorities articulated by the Republican-led House majority caucus.

Big Lake Republican Kevin McCabe — echoing members of House leadership — said during a Tuesday press availability that the Senate’s $1,300 dividend figure was “a nonstarter” for him and that the House’s $2,700 dividend was already a compromise from a full statutory dividend, which would cost $500 million more.

The House voted 28-12 in March to reject the Senate’s dividend figure, which follows the “75-25″ model, where three-quarters of a now-annual draw from Permanent Fund earnings would go to state services and the rest would go to the dividend.

Typically the House and Senate pass different versions of the budget, which are then reconciled through negotiations so a single bill can pass through both legislative chambers and onto the governor’s desk. But it’s unclear how the two vastly different spending plans can be reconciled without one side capitulating.

Three-quarters of lawmakers from both legislative chambers need to approve drawing from the Constitutional Budget Reserve, the state’s $2 billion savings account. Stedman said there are simply not enough votes in the Senate to support drawing from savings and that “there’s no reason to do it. We’ve got a balanced budget.”

The Democrat-dominated House minority blocked using savings earlier in the month to pay for a $175-million school funding boost and to fill the projected deficit. But the House would get a second chance for a three-quarters approval vote if a savings draw is included in the final budget bill.

To stabilize the budget and bridge a projected fiscal gap for a larger dividend in the long-term, legislators have introduced new revenue measures on Alaskans and the oil industry. But none have advanced for a final vote, and lawmakers from across the political spectrum agreed Tuesday that new taxes are unlikely to be approved in the remaining three weeks of the regular legislative session.

Fluctuating oil prices have also been a factor in budget debates. The Dunleavy administration projected in March that a substantial drop in oil prices would see a $925 million revenue hit to the state treasury over two fiscal years. The price of oil has since rebounded to more than $80 per barrel, but the Senate is relying on the $73 oil figure to craft a budget for the fiscal year that starts July 1.

Alexei Painter, director of the nonpartisan Legislative Finance Division, said during a Wednesday finance committee hearing that the Senate’s current spending plan would leave the state with an estimated $93 million surplus, but that could quickly be erased by a small drop in oil prices over the next fiscal year. The House could use the surplus for infrastructure projects, Stedman said, but he wanted there to be some fiscal head room in case there was a revenue shortfall.

If oil prices average above projections made in March, the Senate’s spending plan would transfer the first $1 billion to fill the Constitutional Budget Reserve. Any additional revenue above that would be set aside for public school funding a year head of time.

The Senate’s revised operating budget would also add $15 million to raise wages for child care operators after they reported the system was in crisis. Alaska Gov. Mike Dunleavy said earlier in the month that he did not support a child care boost of that size when announcing a task force to study how to stabilize the sector.

A House plan to spend $4.5 million for the state of Alaska to take over management from the federal government of permitting wetlands for development was removed from the Senate’s spending plan. But it could be added again during final budget negotiations with the House.

The Senate stripped out funding for a Dunleavy-backed parental rights in education advocate, which was largely intended to be a mediator answering questions from concerned parents about how sex education classes are taught in schools. The House previously cut the same position through its budget process.

The Senate’s $357 million stripped down capital budget — used to pay for infrastructure and maintenance projects — would largely be used for state contributions to capture federal funding for infrastructure projects and highways. The Senate majority has said that additional capital project funding or spending for schools could be considered when the Legislature convenes its 2024 regular session next January.

The Senate’s budget is scheduled to continue being debated in the finance committee this week before heading to the floor for a vote of the full Senate next week. The regular legislative session must end by midnight of May 17.