Legislators back to Juneau Oct. 1 for renewed try at fiscal plan

Gov. Mike Dunleavy is hauling state legislators back to Juneau Oct. 1 to try once again for a state fiscal plan that would generate a larger Permanent Fund Dividend, or PFD, guaranteed in the state Constitution.

It will be the fourth special session in 2021, all following adjournment of the regular session, which was itself extended, into late June.

The third special session ended last Tuesday at midnight with none of the governor’s key objectives met – no larger PFD or constitutional amendments guaranteeing a dividend; no restructured formula for setting the PFD and no revised state spending cap.

The governor also hit a rough road with a bill he introduced to aid hospitals and health providers stressed out by COVID-19 overloads. The bill would have expanded telehealth services and helped bring more out-of-state nurses to Alaska.

The legislation was moving along in the House and Senate until a flurry of anti-vaccine amendments by Republicans in the House slowed things not only for that proposal but also taking time away from hearings on bills dealing with a long-range state financial plan and a restructuring of the PFD.

The health bill died on the House after Republicans added another amendment that would restrict the ability of hospitals to manage visits. The Alaska State Hospital and Nursing Home Association objected strongly to the amendment.

The Legislature did agree to a $1,100 dividend, which was the same amount lawmakers approved in late June when the regular session ended. The governor said Tuesday he will accept that amount for the PFD.

Despite the failure on the governor’s key objectives there seemed at least limited progress on the long-term fiscal plan, however. A bipartisan House-Senate Working Group that included all factions in the Legislature did extensive work before the start of this most recent special session. The group agreed on a framework of a fiscal plan that includes a gradual scale-up of the PFD as revenues from the Permanent Fund increase; the governor’s “50-50” plan that would evenly split money provided by earnings of the Permanent Fund between the PFD and budget support, but would also recognize the need for new revenues to balance the budget.

Also, there was agreement on the numbers, spending and income, behind a potential plan, which is important.

Many of these elements were in bills in the Senate Finance Committee as the special session ended on Tuesday.

The gradual buildup of the dividend would avoid having to take an extra, if temporary, draw on Permanent Fund earnings, which is a “red line” for many financially conservative legislators including Democrats.

However, the bills could setting the stage for the fourth special session, providing a framework for agreement. But it’s not clear that all legislators and most important, the governor, would support such a plan with the gradual PFD increase approach and new revenues to support it.

Whether the larger dividend can be attained more quickly depends on the size of the deficit it creates. All sides agree that a 50-50 plan and a $2,300 dividend this year would create a $1 billion deficit, while the smaller $1,100 or $600 dividend, depending on the funding, would craate a smaller, more manageable deficit or no deficit.

Going forward, the Legislative Finance Division, which is nonpartisan projects continued near-term deficits at $1 billon to $1.2 billion a year.

The state administration however, says that after this year the annual deficit would be more like $500 million, which might be more managable. The difference depends on the assumptions used. The administration believes there will be more modest inflation than the Legislature, which results in lower budget growth and a smaller deficit.

The Legislature assumes somewhat higher inflation, which results in growth of spending, in nominal dollars, and a larger deficit. The administration also assumes continued partial funding of certain programs like school debt reimbursements to municipalities.

Legislators assume a return to full funding of those, but that pushes up spending and enlarges the deficit. The size of the deficit will also drive discussion of revenue options, like changes in oil taxes and a state sales tax.

Under either scenario the deficit gradually declines over seven or eight years as Permanent Fund income grows and with it the Fund’s annual contribution to budget support. However, those financial projections could be thrown off if there is another implosion in financial markets such as in 2009.

Meanwhile, if the major fiscal goals were missed this year, so far at least, what else did the Legislature accomplish?

Jordan Marshall, who represents nonprofits, municipal and tribal groups, shared this assessment:

“Alaskans will be tempted to join the chorus of ‘the Legislature didn’t get anything done’ because it didn’t pass a big dividend bill or a fiscal plan,” Jordan wrote in an analysis for clients that was shared.

“But the Legislature did pass a balanced budget; a $1,100 dividend; crafted the largest capital budget in five years and protected the earnings reserve of the Permanent Fund from an overdraw,” he wrote.

K-12 public education, troopers, courts, prisons, retirement payments, community assistance, school bond debt reimbursement, natural resource permitting, Power Cost Equalization, and “everything that keeps the state’s lights on” were funded, Marshall wrote.

“The fact that certain budget items were vetoed by the governor, or that Alaskans won’t get a ‘statutory’ dividend with ‘back-pay,’ does not mean the Legislature didn’t get anything done. The Legislature held the most productive discussions about the state’s long-term fiscal future in recent memory and mapped the parameters of what may become a comprehensive fiscal plan,” Jordan wrote in his assessment.