Kevin McCabe

Kevin McCabe

The 2022 governor’s race has now intruded in protracted and pained discussions in the Legislature over a long-term plan for state finances and the Permanent Fund Dividend.

Almost everything is now viewed on how it will affect Gov. Mike Dunleavy’s bid for reelection and prospects for emerging challengers like former Gov. Bill Walker and Les Gara, a former Democratic member of the state House.

“I was unclear about the reasons for the impasse until I saw that five members of the House Majority had signed on as supporters of Gov. Bill Walker’s campaign,” opposing Dunleavy, says Rep. Kevin McCabe, R-Wasilla.

“A lot of things seem to be now directed at taking down the ‘tall man’ (Dunleavy) in the election,” McCabe said.

However, Rep. Andy Josephson, an Anchorage Democrat, points the finger at Dunleavy for refusing to commit to proposals for new revenues that would make a fiscal restructuring and dividend plan work.

Josephson also said the financial assumptions behind Dunleavy’s dividend plan are risky and unrealistic.

McCabe, who is part of the House Republican Minority, was named to the special House-Senate bipartisan group formed to develop a consensus on fiscal issues.

“As a freshman, I was honored to have been chosen for this group,” he said. Hopes were high after the group agreed on an outline of a plan and the number to support it.

“All eight of us were optimistic about the work product but our hopes were dashed by the leadership of both the House and Senate, and some committee chairs, who refused to advance any legislation in support of our plan. It was a huge frustration,” McCabe said.

“We had 70-plus hours in meetings, working through a multitude of fiscal scenarios.” I drove from Wasilla to Fairbanks and back in one day to attend a public hearing.”

Despite all that, the work product was likely dead on arrival.

“I don’t think any bills to support the Fiscal Policy Working Group’s product will ever get out of the Rules Committee in the House. Why would the rules chair, who is a co-chair of Candidate Bill Walker’s campaign, want to give Governor Dunleavy a win?” he said.

“We came down to Juneau knowing it was likely nothing would happen, both last special session and this one. But we were asked to show up, and we did to try to advance things”, McCabe said.

“The working group product was intended to be a framework,” and a lot of compromises were made to get to it. I’m from the most conservative district (in the Legislature) and my constituents want a ‘full PFD’ and to get the back pay,” or the money from several years of dividends paid below the full formula, he said.But in the spirit of compromise McCabe said he was able to agree with others in the group to support the governor’s new ’50-50’ plan and the 5 percent-of-market-value draw from Permanent Fund earnings, but with an extra draw this year to pay a higher dividend.

“But the fiscal solution must be comprehensive. We agreed that there should not be any ‘cherry picking’ of pieces of our product; so that it sort of all or nothing approach,” McCabe said.

“For instance, my compromise (for 50-50) was by and large offset by the idea of placing the question of the PFD in the Constitution for a vote. Without that piece of the puzzle, there was no way for me to move off the full PFD,” he said.

The $1,100 PFD agreed for 2-22 is not enough. “We need at least a $2,300 dividend (which the 50-50 plan wouod produce) to help people who lost jobs because of COVID,” McCabe said.

“Conditions are tough in rural villages because of the results of COVID-19 lockdowns and food shipping issues as well as the failure of the salmon run on the Yukon. In the six weeks that the working group met the Permanent Fund gained a billion dollars in value,” he said.

With the offsets in the budget of the ARPA and cares funding, If we’re able to do just one ‘overdraw’ this is the year to do it. Others (in the Legislature) are not quite able to get there, however.”

They seem to be arguing for the caricature of “we can’t overdraw the ERA” when, in fact, one of the tenets of the Governors SJR6 was the ERA would go away. I repeatedly asked what does it mean to overdraw the ERA? I have heard this soundbite since January and the PF and ERA have both increased by 25+%.... So what does “overdraw” mean.

Meanwhile, Rep. Andy Josephson, D-Anch., among others, feels the assumptions that underpin projections for the 50-50 plan may prove optimistic, not only on expectations of steady growth in financial markets but also oil revenues, although these only provide a third or less today of general fund revenue. Josephson said he might be comfortable with a more cautious “75-25 plan” that provides 75 percent of the POMV to budget support and 25 percent for the PFD.

Finding a compromise on these contentious issues including the split of the POMV; whether a Fund earnings “overdraw” should be done, and for how much, and whether an effective spending cap can constrain budget growth, are all important in resolving differences over the fiscal package.

The governor and most legislators meanwhile appear to be on different wavelengths, Josephson said. “The governor wants 50-50 in the Constitution forever. The 50-50 may be workable (in statute) but only if there is a stair-step up to that from the $1,100 this year,” he said.

It may be possible to get votes for a 75-25 split in the Constitution in the House but it is uncertain that the Senate would go along, Josephson said.

“But even 75-25 would still have to be as part of a ‘grand bargain,’ for me to accept it. This would include some new form of broad-based revenue and ‘reform’ of the per-barrel (oil tax) credits; some allowance for modest growth of the operating budget,” in a spending cap, Josephson said.

“Also, there must be some recognition that estimates for the percent-of-market-value draw and oil revenue (that underpin the 50-50 plan) might not be as rosy as are being suggested,” he said.

It may also be possible that at 75-25 we may not need a broad based tax (like a sales tax). We may be able to cover it with a (higher) fuel tax, head tax (per-employed wage earner) and a change to the oil tax credit,” Josephson said.

“It’s discouraging that the governor refuses to make a commitment to those specific revenue measures so far. The governor will not risk anything to erode his base, with this or with COVID-19,” health measures, he said.

Meanwhile, back-to-back special sessions are taking a toll, Josephson said. “Many legislators are just exhausted, and unless there’s a signal from the governor that he will accept something,” like new revenues to make the package work, it’s possible the Legislature may just ‘gavel out the current fourth special session without accomplishing anything.

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