Senators add spending as clock ticks toward adjournment; new Permanent Fund Dividend formula proposed

The Senate’s version of the state operating budget is taking shape in the Senate Finance Committee and among other things now has $60 million in additional K-12 school funding and a $60 million supplemental appropriation to the FY 2022 (current year) budget to pay oil exploration tax credits obligations.

Those were only partly funded in the 2021 legislative session.

The budget, which is still under development, also adds $27 million to pay for state agencies’ increased fuel costs and $300 million in supplemental FY 2022 funds from federal American Rescue Plan Act, or ARPA, funds to replace lost state revenues. There’s another $186 million in remaining ARPA funds to be used in FY 2023.

The budget also assumes “forward funding” of K-12 education for a year to give school districts assurance of funding for budget planning.

A state capital budget is also being prepared separately in both the House and Senate, and it will be higher than the governor’s proposed $195.4 million of Undesignated General Fund spending. It may wind up in the $300 million to $400 million range as the session’s mid-May adjournment nears. Meanwhile, federally-funded infrastructure spending, when decisions are made on that, will add to the total.

It’s likely that the final budget will have funding for total school debt reimbursement to municipalties – this has been only partly funded in recent years, along with money for rural school district major maintenance projects. The FY 2023 oil tax credit liability will also be funded.

Many of these things were also included in the operating budget passed by the House. The question, however, is how much of this Gov. Mike Dunleavy will veto using his “line item” veto authority. That happens after legislators adjourn and leave Juneau.

Meanwhile, the 2022 Permanent Fund Dividend payment, drawn on the FY 2023 budget, is still in play along with various proposals for a new formula for the PFD payment. A new formula would replace an obsolete 1980s-era formula now in statute, the so-called full funding scenario that is often discussed. Legislators, and the governor, have worked to dampen public expectations that a “full” PFD will be paid, however, because of its hefty pricetag.

The governor’s proposal is now for a “50-50” split between the dividend of the annual Permanent Fund payment made to support the budget. Other combinations are also being proopose such as a “25-75” plan for 25 percent of the Fund’s annual payment reserved to the PFD and 75 percent for general budget support. This idea is now in a bill passed by the Senate Finance Committee, although it would convert to 50-50 if new revenues are raised.

If nothing were done and the full PFD (estimated at $4,200 paid this year) were actually paid, modeling by the Legislative Finance Division show that there would still be a $705 million surplus in FY 2023 and a $215 million surplus in FY 2024. Deficits begin again in FY 2025 and continue.

The full-PFD scenario should be compared to the governor’s projections of a $1.2 billion surplus in FY 2022 and a $2.4 billion surplus in FY 2023. For the FY 2023 surplus estimate the governor assumes a “50-50” PFD, or one that splits the annual Permanent Fund payment between the budget and the dividend.

The Legislative Finance Division has also done modeling that shows that with the governor’s 50-50 dividend plan a small deficit would occur in FY 2023 followed up two years of small budget surpluses, but then ongoing, growing deficits that begin in FY 2026, with this assuming a 2.5 percent annual growth in spending.

The PFD itself would be $2,542 in FY 2023 and increasing in future years. If the budget grows at 5 percent a year, deficits would begin a year earlier, in FY 2025, the model says.

The other scenario considered, the 25-75 percent, would increase to 50 percent for the dividend if $800 million in new revenues were raised beginning in FY 2027. No particular source of revenues is assumed in the model, but a “broad-based” measure like a state sales tax is considered the most likely candidate.

Senate Bill 199, which has this combination, passed out of Senate Finance Committee April 22 and now in the Senate Rules Committee, where it waits for placement on the Senate schedule for floor action.

Several members of the Senate Finance Committee voiced objections to SB 199. Sens. David Wilson, R-Wasilla, and Bill Wielechowski, D-Anchorage, said they will seek amendments on the floor of the Senate. Sen. Natasha von Imhof, R-Anchorage, said she is against imposing taxes on Alaskans to pay a large dividend.

If SB 199 were to pass, the PFD this year, following the 50-50 formual, would be about $2,600 for each eligible citizen. The dividend would drop over the next four years, following the 75-25 split, to about $1,250 and then gradually increase.mHowever, under the scenario if $100 million in new revenues by 2026, the PFD would increase to over $3,200 in 2027.