Alaska lawmakers say they want compromise on PFD, but it’s unclear how they’ll get there

The Alaska Legislature didn’t hold a single meeting during the first week of the fourth special session. It has been gridlocked all year over the future of permanent fund dividends. The Legislature has struggled with the issue for six years. Nearly all legislators say they would support a compromise. What isn’t clear: whether that compromise exists. 

A closer look at what happened during the last special session can shed light on why things seem stuck during this one.

At the end of the third special session, the Senate Finance Committee put forward a major bill that would balance the state budget and allow permanent fund dividends at the level proposed by Gov. Mike Dunleavy, though that would take three years. 

But the Senate hasn’t passed the bill yet. Supporters of Dunleavy’s budget plan criticized it. For one, because it wouldn’t put the PFD in the state constitution. Also because it wouldn’t lower the state’s spending limit. And finally, because it would increase taxes more than they’re comfortable with.

“I’ve said the ‘t-word’ enough, and I hate the word ‘revenue.’ It makes it sound like a business,” Wasilla Republican Sen. Mike Shower said during a debate over the bill. “We’re not making money here. We’re taking money from people here to do taxes. I got it.”

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Shower was referring to $700 million in taxes that the Finance Committee said made the bill pencil out. 

Dunleavy hasn’t proposed a tax. And it’s not clear how his plan would pay for both larger PFDs and the budget, beyond the next couple of years. What he has proposed is a one-time $3 billion draw from permanent fund earnings. That’s projected to be enough to cover the budget and two years of PFDs, with the potential for a third year depending on the fund’s growth. 

Some legislators oppose the one-time draw from permanent fund earnings, which would not only give up $3 billion now but also the roughly $200 million a year it could generate every year forever. But they really don’t want to do it if it won’t solve the long-term problem. 

Sitka Republican Sen. Bert Stedman co-chairs the committee that put forward the bill. He also is skeptical of new taxes. But he said they’re necessary if the state is going to pay bigger dividends. So during the Sept. 14 Senate session, he criticized a proposal to lower the new tax number in the bill. 

“It would put us in a position where we’d have a continuation of a structural deficit,” he said. “It wouldn’t fix the problem.”

Nonpartisan analysts project a $7 billion gap over the next nine years. And paying for it is at least part of why the Legislature has not been able to agree on a change to the permanent fund dividend formula in the seven years since oil prices fell.

Dunleavy and legislators who want higher PFDs but don’t want a major tax also want spending cuts. But neither the governor nor most legislators who have said they wanted cuts have proposed cutting state services on a large scale. At least not since Dunleavy reversed his positions on budget vetoes in August 2019. That came after a public backlash to the cuts he had pursued earlier that year.

And that’s important to House Speaker Louise Stutes of Kodiak. She’s a Republican who is part of a mostly Democratic caucus. Stutes said that if there are going to be much higher dividends, they have to be paid for. And not with a one-shot drawdown in permanent fund earnings. 

“I mean, it’s easy to say, ‘I want spending cuts,’ just like it’s easy for me to say, ‘I would love to have a big, huge PFD’,” she told reporters in the middle of the third special session. “The question is: Where are the spending cuts going to come from? Or how are you going to pay for the big PFD? Show us. If you want spending cuts, show us how you’re going to provide for those.”

Dunleavy responded on Sept. 14, pointing first to the size of the permanent fund — currently $81 billion — and why he proposed the $3 billion draw. 

“We offered that because we didn’t want businesses impacted by taxes in a business recovery period,” he said. “We offered that because people didn’t want huge cuts in government during a pandemic … recovery period. We offered that because the people of Alaska could have injected hundreds of millions of dollars into the local economy — all win-wins. We offered a solution.” 

Dunleavy and many of the legislators that support larger dividends have said there’s a model for how the Legislature could solve the problem. That’s the working group that met this summer, made up of members from both chambers and all four caucuses.

The group reached consensus on dividends at the scale Dunleavy has proposed. And it endorsed the concept of putting the dividend in the state constitution.

Rep. Jonathan Kreiss-Tomkins, a Sitka Democrat, co-chaired that group. He said it took a lot of time and careful communication to overcome distrust and reach the consensus, and he thinks a solution is possible. 

“There is a cynicism out there that nothing is ever possible, like, ever,” Kreiss-Tomkins said. “And I just don’t think that has to be.”

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There are other proposals out there that could close much of the gap. 

Anchorage Democratic Rep. Geran Tarr has been among the first legislators to introduce budget bills, in the third and fourth special sessions. One of the bills would introduce a 2% statewide sales tax. Another would raise the minimum amount that oil and gas companies have to pay in production taxes. 

Tarr said the sales tax would spread the burden more fairly than PFD cuts, including raising more money from out-of-state visitors. She also proposed that the sales tax wouldn’t apply to some essential costs.

“I really stumbled on that — how could we achieve something that wasn’t a disproportionate burden to our small and rural communities,” she said. “So exempting food, medicine and heating oil as basic necessities and essentials felt like a really good place to start.”

Tarr said a long-term way to reduce state spending would be to support more early intervention through social services for children. 

“What I try to talk to people about is looking at it in a systemic approach: If we cut programs today, it will not reduce the demand for that program and often the outcome is more costly,” she said. “What we need to do is reduce the demand for that program, and that will naturally bring savings.”

Tarr has worked with Republicans on some votes — including supporting drawing from permanent fund earnings to pay for larger dividends. However, she’s also an outlier in the Legislature, and spent several days outside of either caucus earlier this year.

But for now, it’s not clear if any bills have enough support to pass this special session. The first committee meeting on any bills is scheduled for Wednesday, when the House Special Committee on Ways and Means is scheduled to consider a bill that would change the PFD formula. That would be on the 10th day of the special session, which must end by its 30th day, Nov. 2.