Alaska Senate advances a 75-25 Permanent Fund dividend formula bill to a hostile House

JUNEAU — The Alaska Senate advanced legislation Monday that would set a new Permanent Fund dividend formula in state statute — but it faces slim odds in the House, where a Republican-led majority supports a dividend twice the size.

Senate Bill 107 follows the “75-25″ model, where three-quarters of an annual draw from Permanent Fund earnings would be directed to state services and the rest would go to the dividend. Under that formula, the dividend would be roughly $1,300 per person this year, and it is projected to increase to around $1,500 by the end of the decade as the Permanent Fund grows in value.

The Senate’s measure does include contingency language: The dividend could double to the “50-50″ figure if measures to collect $1.3 billion in recurring state revenue are implemented before 2031, and if the state’s main savings account has a minimum balance of $3.5 billion. Proponents said that provides a path for a larger dividend while opponents said those targets were deliberately unattainable.

The Senate’s dividend bill advanced to the House on a 12-7 vote Monday, but support did not split along caucus lines. Majority Democrats Bill Wielechowski, Matt Claman and Forrest Dunbar joined Wasilla Republican David Wilson in opposing the bill, alongside the three-member conservative Republican minority.

The dividend plan then faces long odds in the House. Big Lake Republican Rep. Kevin McCabe — echoing members of House majority leadership — said last week that a 75-25 dividend formula was “a nonstarter” for him, and that the 50-50 dividend was already a compromise from a full statutory PFD. Palmer Republican Rep. DeLena Johnson said in a brief interview Monday that she expected the bill would need to be amended before it could pass the House.

The Republican-led majority has instead indicated support for a long-term $2,700 dividend, following the 50-50 model. A House committee has heard new dividend proposals and a 2% state sales tax measure, which has been paired with a proposed corporate tax cut. But no bills to resolve the state’s structural deficit have advanced to the full House for a final vote.

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After three years of debate, the Legislature passed Senate Bill 26 in 2018, which established an annual 5% draw from Permanent Fund earnings to pay for the budget and the PFD. The Senate had approved a 75-25 split between state services and the dividend, but the House deleted that provision from the final bill.

Sen. Lyman Hoffman, D-Bethel, called the new dividend formula measure “a major improvement” on the 2018 bill as there was a path forward for a larger 50-50 PFD. He said that the Legislature had been “stuck in the mud” over the dividend since the price of oil cratered and the check became part of the annual budget-making process.

The nonpartisan Legislative Finance Division projected last month that the Senate’s 75-25 dividend still would likely leave the state with a small budget deficit within three years, based on recent oil price forecasts. A dividend twice that size would cause the deficit to balloon to $1.3 billion within 10 years, according to the Legislature’s accountants.

Raising that much new state revenue by 2031 could pose challenges. The conservative Tax Foundation estimated in 2020 that a 2% state sales tax could collect roughly $741 million per year. The state Department of Revenue projected Monday that a separate Senate proposal to increase taxes on the oil industry could raise $1 billion in its first year, dropping to $600 million the following year, and down to $400 million within 10 years.

Sen. Cathy Giessel, R-Anchorage, said the Senate’s dividend proposal would be a way to incentivize the Legislature to pass a broader fiscal plan to resolve Alaska’s long-term structural deficit.

“We need new revenue — not from oil — we need more revenue from other sources,” she said. “We need to work hard so that we can continue to provide the services that all of us depend on.”

Giessel said that successive legislatures’ flat budgets have had consequences, pointing to a monthslong food stamps backlog, a shortage of public defenders and uncompetitive pay for Alaska State Troopers.

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Opponents of the Senate’s dividend bill spoke against the contingency language to pay a 50-50 dividend. Sen. Robb Myers, R-North Pole, said he felt like the $1.3 billion figure was designed to fail and that it was “a tease” for supporters of a larger PFD. Palmer Republican Shelley Hughes said raising that much new revenue was unattainable.

Claman said the Senate bill opened up the possibility of new taxes to pay for a larger dividend, which he said his constituents did not support. Dunbar opposed the bill after saying dividend cuts would be regressive by disproportionately impacting lower-income Alaskans.

Wielechowski, who has long supported a larger dividend and introduced the Senate’s proposed oil tax increase, voted against the Senate’s bill and said it faced zero chance of passing in the House. A member of the bipartisan majority’s leadership team, Wielechowski said proposals for new revenues should have been advanced for a final vote at the same time as the dividend formula rewrite.

In 2021, a bicameral and bipartisan fiscal policy working group developed a framework for a long-term fix for Alaska’s structural deficit. The group recommended that lawmakers work toward putting a 50-50 dividend formula in the state constitution; enact a tighter legislative spending cap; and implement measures to collect hundreds of millions of dollars in new state revenue each year. But no fiscal plan measures had passed either legislative chamber until Monday.

“A PFD cut is not a fiscal plan,” Hughes said in opposition to the Senate’s dividend bill. She introduced an amendment that was intended to follow the fiscal policy working group’s recommendations, with a tighter spending cap and a 50-50 dividend contingent on approval by Alaska voters. But Hughes’ amendment was solidly rejected on a 16-3 vote, with only the two other minority Senate Republicans — Myers and Mike Shower — joining her in supporting the proposal.

Alaska Republican Gov. Mike Dunleavy, who has long called for a larger dividend and opposed imposing taxes on Alaskans, said last week he would soon be introducing a yet-unseen sales tax proposal to help stabilize the budget and raise new revenue. A spokesperson for his office said after Thursday’s press availability that Dunleavy wanted the Legislature to approve the 50-50 dividend formula within a broader fiscal plan.

Dunleavy said that he would likely call legislators into a special session if they did not resolve the state’s long-term structural deficit soon. The regular legislative session must end by midnight of May 17.