The Alaska Legislature’s quest to pass a viable state budget before the end of the legislative session in mid-May isn’t getting any easier.
“Ladies and gentlemen, we're all in a pickle,” House Speaker Bryce Edgmon, I-Dillingham, told reporters on Tuesday.
At this point in a normal year, Edgmon said, House lawmakers would be on the verge of passing their version of the state’s operating budget, marking the lower chamber’s preferred level of spending on state agencies, public schools and the Permanent Fund dividend. Last year’s budget passed the House on April 11.
But this is not a normal year. Low oil prices are fueling large deficits, meaning tough budget decisions are ahead. With a razor-thin 21-19 majority for the chamber’s Democrat-heavy bipartisan coalition, House lawmakers are struggling to come to an agreement that meets their constitutional obligation to pass a balanced budget.
Nowhere is that struggle clearer than in the state operating budget, which House Finance Committee members voted out of committee last week. The $13.5 billion appropriations bill contains $2.5 billion for dividends, enough for a roughly $3,800 PFD, in line with Gov. Mike Dunleavy’s budget proposal and a formula in state law that has not been used since the mid-2010s. The budget also includes a so-called “unallocated cut” of nearly $80 million, an unusual step that would give the governor the freedom to make substantial cuts on his own. Legislative attorneys warn the step could be unconstitutional.
Altogether, it adds up to a $1.9 billion deficit. And that’s before accounting for recent volatility in the markets for crude oil, equities and bonds, which further threatens the state’s financial stability.
“It is a crisis. We cannot pay an unsustainable dividend,” said Chuck Kopp, R-Anchorage, the House majority leader.
The state has approximately $2.8 billion in its main rainy-day fund, the Constitutional Budget Reserve.
Large dividend figure is largely a mirage — but a persistent one
Members of both the coalition majority and Republican minority have called the $3,800 figure unrealistic in a year when roughly status quo spending would leave a $677 million deficit between the current fiscal year ending in June and the next year beginning in July. That figure, spotlighted by Senate budgeters, includes a roughly $1,400 dividend and a long-term extension of this year’s $175 million boost to education funding.
But House lawmakers have so far failed to come to an agreement on a more realistic dividend.
Majority lawmakers, including members of House leadership, have called repeatedly for reducing the PFD to $1,000 in an effort to balance the budget while boosting funding for public schools. But so far, they haven’t mustered the votes to pass, or even advance, a budget that reflects that stated preference.
During the marathon budget-writing process, two majority-aligned members of the House Finance Committee — Rep. Neal Foster, D-Nome, and Rep. Nellie Unangiq Jimmie, D-Toksook Bay — voted with all of the House Finance Committee’s minority Republicans to reject a proposal that would have reduced the PFD to $1,000.
Foster and Jimmie were not available for interviews Wednesday afternoon, but Foster has in the past said PFD reductions amount to a tax that falls disproportionately on the poorest Alaskans.
The House’s chief budgeter, House Finance Committee Co-Chair Andy Josephson, D-Anchorage, said he’s sympathetic, but the dire fiscal picture is forcing lawmakers’ hands.
“We don't yet live in a world where the Alaska people, writ large — although we heard different messages in Anchorage — are ready for themselves to invest in their state government, so here we are,” he said. “I'm not saying that people who want the PFD in its entirety aren't speaking to a set of values. We just have a significant math problem.”
House leaders turn to minority and governor for help
With members of his own caucus apparently unconvinced, Edgmon on Tuesday pleaded with his Republican counterparts for help.
“We need the help of the minority caucus. We also need the help of the governor to come forward and to put all these pieces together,” Edgmon said.
Reducing the PFD would only go so far when it comes to balancing the budget, though. Even with a $1,000 PFD, the nonpartisan Legislative Finance Division estimates a $169 million deficit for the next fiscal year — if a House-passed $1,000-per-student funding boost, a key campaign issue for the Democrat-dominated majority, is included.
“That's just not possible,” said Rep. DeLena Johnson, R-Palmer and the senior Republican on the Finance Committee, said.
House minority Republicans say they’d like to see some additions to the governor’s budget rolled back, though those would not close the gap. Johnson said she anticipated cuts to both the PFD and the House's $275 million education bill that’s now in the hands of the Senate.
“We're looking at really having to cut things back, and [that’s] probably going to include having to discuss both of those two very, very, very difficult things,” Johnson said.
'Maybe we can get to yes' on Senate tax bills
Even reducing the education funding boost to a status quo level, $175 million, same as schools got this fiscal year in one-time funding, would not close the remaining gap.
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Another option for balancing the budget is raising state revenue. Members of the bipartisan Senate majority have suggested expansions of corporate income taxes and reductions to oil and gas tax credits.
“I hope they pass,” said Senate President Gary Stevens, R-Kodiak. “I'd like to see us have reasonable education funding and a reasonable dividend, and not have to slash everything, as we would if we don't have those revenues.”
Stevens also suggested that the Legislature may not have a choice when it comes to determining the appropriate school funding level.
“I suspect that the legislature may pass a $1,000 [school funding increase],” he said. “I have no doubts, from having spoken to the governor, that he will veto that.”
Stevens said he expected efforts to overcome a veto with a two-thirds majority vote would be “dead on arrival.”
Josephson, the Finance Committee co-chair, suggested the House may agree to Senate-proposed reforms that would capture corporate income taxes for large S corporations in the oil and gas industry — namely, BP successor Hilcorp, which is not subject to typical state corporate income taxes — and companies that do business in the state via the internet.
“Maybe we can get to yes,” Josephson said.
But the House majority’s one-vote margin may make that difficult. Kopp, the majority leader, said he opposes the Senate’s revenue measures.
"Not this year," he said last month.
Stevens, though, reiterated Wednesday that he continues to oppose spending from savings for the coming year’s budget, despite recently acknowledging a withdrawal will likely be necessary to close the budget gap in what remains of the current fiscal year.
If the House fails to pass a budget, the Senate could push forward with its own budget bill, cramming the Legislature’s typically separate operating, capital and supplemental spending bills into a single budget document colloquially referred to as a “turducken.”
Despite the political headwinds and mounting time pressure, Edgmon says he remains optimistic lawmakers will settle on a budget before the constitutional end of the legislative session on May 21. Edgmon estimated that the House would have to pass a budget next week to remain on track.
“We still have time,” he said. “We don't have a lot of time.”
Correction: An earlier version of this story misspelled Toksook Bay.
