Legislative session ends are never pretty; This one could be ugly

The end of legislative sessions is never pretty and the special session set to end Friday, June 18, may be ugly.

Gov. Mike Dunleavy is urging legislators to continue working to solve disagreements. ‘”The budget is incomplete and creates uncertainty for Alaskans. Failure (by the Legislature) to complete its constitutional duty could result in a detriment to state services and programs that Alaskans expect and deserve,” the governor said in a statement Wednesday.

The state House and Senate voted on a Fiscal Year 2022 state budget earlier this week. On Tuesday the 40-member House approved the budget bill, House Bill 69, by a narrow 21-18 margin, with one legislator excused because of illness.

The House failed, however, to get the 30 votes needed to fully fund the budget with money from the state Constitutional Budget Reserve, or CBR. Taking funds from the CBR takes a three-quarters vote. The Constitution requires a fully-funded budget because the state is not allowed to have an unfunded budget.s

On Wednesday, in a first try at a vote, the 20-member Senate got only 10 votes to pass the budget, one vote shy of the 11 needed. Two hours later the vote was rescinded, and budget passed, when Sen. Lyman Hoffman, D-Bethel, switched his vote from no to yes.

The final vote on Thursday had the required 11 yes votes to pass the bill. However, the Senate still needs 15 votes, or three-quarters of its members, to approve full funding of the budget with the CBR fund for the budget. On Thursday there were only 12 who voted yes.

Things can change again before the required adjournment of the special session on Friday if agreements come together. That seems unlikely given a hard core of conservative Republican opposition in the House, a group that includes many Mat-Su lawmakers.

What’s behind all the drama appears to be the decision in the House-Senate budget conference committee last Sunday to fund the Permanent Fund Dividend, or PFD, at $1,100 instead of a larger payment proposed by the governor under new formula he has put forth for calculating the PFD. That is a dividend estimated at $2,334.

The budget conference committee settled on a lower dividend because it can be funded with existing state revenues and does not require an increased draw from Permanent Fund earnings, which would be needed to pay the larger dividend.

What poured gasoline on the dispute were additional provisions put in HB 69, the conference committee budget bill, last Sunday that unless the CBR funding was approved the PFD would shrink to $525 and several hundred million dollars of programs and projects would be deferred, many of them affecting the Matanuska-Susitna Borough.

Included in those is $9 million to replace the earthquake-damaged Houston Middle School; $10 million for road rehabilitation in the Mat-Su and $8.5 million for more work on the West Susitna Access Project, a strategic initiative for a 100-mile resource road to open undeveloped areas in the western part of the Mat-Su Borough.

The programs and projects affected are funded partly with money from the reserve fund, so that they cannot operate or proceed until the is in place. Mat-Su legislators were among those who voted against the CBR withdrawal.

Critics quickly accused the legislative leadership in both the House and Senate, who appointed the conference committee, of strong-arming lawmakers voting no with the loss of funds for their districts.

The core of the disagreement over the $2,400 PFD compared with the $1,100 dividend is the strong opposition by many in the Legislature to an “overdraw” on the Permanent Fund’s earnings reserve.

Under a 2018 state law an annual payment of 5 percent of the Fund’s market value is made annually to help support the budget. Paying the larger PFD this year, however, would require a larger draw of about 7 percent.

The governor and many legislators support this as a “one-time” overdraw for the larger PFD because of the effects of the pandemic on the state’s economy. Opponents argue that once the 5 percent limit is breached it will be easy to continue it.

Also, 2022 is an election year in which legislators running for reelection will be vulnerable to constituents’ pressure for larger dividends, critics point out.

How all this will end up is highly uncertain, but the stakes are big. A budget for FY 2022 must be approved by the Legislature by June 30. Without an approved budget by July 1, the start of the fiscal year, most state programs will not be able to operate.

With the PFD and overdraw as the major sticking points, there are possible compromises. One might be passing the budget without the PFD, and delaying the PFD decision to an August special session that has been called the governor on his long-term fiscal plan.

Another is agreeing on $1,100 for now but planning for a supplemental dividend if agreements on a long-term fiscal package come together in August. However, that special session will be difficult enough even without a PFD.

Already on the agenda for August are new revenue proposals which the governor has not yet spelled out as well as possible budget cuts for the long-term fiscal plan.

These will be added will be the governor’s proposals for constitutional amendments to restructure the Permanent Fund. Those were supposed to have been decided in the special session ending Friday but were not, so they will have to be added to the plan for August.

If the PFD is not decided by Friday the dividend will be one more volatile issue added to the August special session agenda that is explosive enough.