Legislators go back to Juneau to sort out budget mess

Another special legislative session is to be underway in Juneau on Wednesday. It’s the second so far this year in addition to the regular session, which ended May 19.

This special session is for legislators to finish work on the state budget which was left incomplete in the regular session as well as a special session that immediately followed, Gov. Mike Dunleavy called legislators back into session May 20 to finish the budget.

It didn’t happen. The special session ended June 18 (they can last 30 days).

Now yet another special session is planned for August, this one for legislators to work on a comprehensive state financial plan that includes constitutional amendments.

Those include changing the structure of the Permanent Fund; putting the Permanent Fund Dividend, or PFD, into the constitution along with a new formula for calculating the dividend; a state spending cap and a prohibition against broad-based taxes without voter approval.

That’s a long list, but first the Legislature must finish the budget, their primary responsibility under the Constitution, finding a way to overcome disagreements that mainly revolve around the dollar amount of a 2021 PFD.

Time is short. The end of the current fiscal year, FY 2021, is June 30. A budget must be in place and approved by the Legislature, fully funded and signed by the governor, by July 1, or many state operations cannot legally be done.

There are potential “work-arounds” to a government shutdown if there is no agreement. If the delay in an agreement is short-term and merely procedural the state may be able to legally borrow and operate for a short time.

But if the delay is protracted and caused by continued political impasse, other steps might be taken, but there’s a lot of uncertainty because it hasn’t happened before. It almost happened during the Walker administration and a workaround road map was laid out that involved using reserve funds to operate essential services like public protection and health, emergency response and the staffing of prisons.

There was a lot of concern then, and there is now, whether state fisheries managers can continue to work in the field, which is vital to commercial fisheries.

The Walker workaround plan never had to be used because budget agreements came at the last minute. But it was never a sure bet that the courts would agree to it given the budget language in the constitution.

If the Legislature can’t find a solution by June 30 – and that’s just days away – Alaskans are trodding new ground, legally.

What’s holding things up?

It really seems to be mainly about the PFD.

Three agreements are needed for the budget. One is on the budget bill itself, which requires a majority vote in the House and Senate, or 21 of 40 House members and 11 of 20 senators.

That has already been voted on in both the House and Senate and House Bill 79, the budget bill, has been approved. However, two other votes are needed to really make things official need a “super-majority” three quarters vote in both the House and Senate.

Getting 30 out of 40 House members to agree and 15 of 20 senators can be a challenge if 10 in the House and five in the Senate want to leverage their clout on something they want.

The first of the super-majority votes is for a withdrawal of funds from the Constitutional Budget Reserve, a savings account, to balance the budget.

While there is more oil revenue expected this year because oil prices are up the money isn’t in the bank yet, so authority to draw from the CBR is needed to give financial certainty.

A third vote needed is the Effective Date Clause, which sound arcane – the date the budget becomes effective – but it is important. Normally, bills become effective 900 days after they are passed by the Legislature.

By passing a resolution on an Effective Date Clause the Legislature can set a different effective date, such as July 1 for the budget.

This takes a three-quarter super-majority too, so it’s another lever handed to a small group of legislator’s intents on blocking things.

The governor says there can be no legal budget until there is an effective date earlier than 90 days.

Republicans in the House want a larger Permanent Fund Dividend. At the end of the regular session on May 19 the House-Senate budget conference committee, which is formed to reconcile differences between budget bills passed by the House and Senate, offered up a $1,100 PFD. They argued this can be paid with existing funds and would not require money to be taken from the Permanent Fund’s earnings reserve.

Many House Republicans, and some Republican senators, want a PDF more like what the governor has proposed in his “50-50” plan, which would split the annual percent-of-market-value (POMV) draw that is made annually from Permanent Fund earnings to support the budget. The POMV for FY 2022 is about $3 billion.

Under 50-50 half of that, or $1.5 billion, would go to PFDs, making for a dividend just over $2,300 to be paid this fall. But this also shorts the budget by $1.5 billion. Since the budget is already written, cutting that amount would be difficult and very disruptive.

The alternative is overdrawing the POMV payment, which is set at 5 percent of the Permanent Fund’s total value. The governor and many legislators favor this but many lawmakers, including most of the House and Senate leadership, are dead set against it.

Five percent is a rate at which withdrawals can be made and allow the Permanent Fund to continue to grow. Exceeding that, if it is done regularly, could endanger the sustainability of the Permanent Fund.

Opponents to the overdraw this year argue that once it is done it’s easy to do it again, 2022 is an election year.

There’s more to all of this, however. Some say the House and Senate leaderships were too high handed in a budget plan that conditioned even the $1,100 PFD on House Republicans’ supporting it with the CBR vote. (The payment would cut in half to just over $500 if they don’t.)

Rubbing salt in the wound, at least for Mat-Su legislators, is that priority capital projects for the region like the rebuilding of Houston Middle School were funded in a way that the money went away if Republicans didn’t vote for the CBR withdrawal.

“Blackmail” provisions like these got peoples’ danders up. It was hardly an environment conducive to agreement on difficult issues.