Here’s a simple guide to what’s happening in the Legislature, where things stand, and why.
Q: What will the Permanent Fund Dividend be this year?
A: We don’t know yet, but we have some ballpark figures. On Friday, the House approved spending $1.02 billion on dividends. Last year, 615,590 Alaskans received dividends. Divide the first number by the second, and you get $1,663.
We don’t know how many people will receive dividends this year (the deadline for applications was 11:59 p.m. Saturday), so the exact number will almost certainly change.
It may also change in a big way because that $1,663 figure is only the House’s opinion. The Alaska Senate still has to weigh in, and it has traditionally favored a lower dividend.
In the end, the dividend will probably be a compromise between the figure picked by the House and the one picked by the Senate.
Q: How did the House pick its figure?
A: Politics. When the budget debate started on the House floor, the dividend was set at $1,258. On Monday, lawmakers voted 21-19 in favor of a $2,700 dividend. Those who voted it higher said they didn’t want dividend cuts to be the only significant way to reduce the state’s deficit.
That created a problem, because spending from the Permanent Fund is the only widely agreed-upon way to cut the state’s multibillion-dollar deficit. Every dollar spent on the dividend is a dollar less for ordinary state expenses.
“You can’t do both without adopting a rational fiscal plan,” said Rep. Les Gara, D-Anchorage, on Friday.
That divide stymied progress for four days. From Monday afternoon through Friday morning, lawmakers negotiated behind closed doors and twisted arms to get a compromise.
That compromise was Friday’s vote for the $1,663 dividend.
Q: How big is the deficit?
A: Again, we don’t know exactly. The best estimate is $2.4 billion, or a bit less a quarter of the size of the whole budget.
Because the vast majority of the state’s revenue comes from oil, the size of the deficit is determined by things like the global price of oil and how much oil is produced on the North Slope. The state makes estimates, and then the Legislature outlines how much money it expects to spend in the coming year. The difference between the estimates and what the Legislature expects to spend is the deficit.
The amount the Legislature expects to spend is also in question, since the Senate hasn’t had its input on the budget.
Q: How is the state going to pay for that deficit?
A: According to the House’s plan (again, the Senate hasn’t yet chimed in) about two-thirds of that will come from the Permanent Fund. The remaining third will come from the Constitutional Budget Reserve. That reserve (which requires a three-quarters vote of the House and a three-quarters vote of the Senate to use) is expected to have about $2.2 billion in it by the time the next budget starts.
Q: Why aren’t people talking about an income tax anymore?
A: Last year, the Alaska Senate convincingly voted down an income tax approved by the House, and the leadership of the Senate Majority has said again and again that its position has not changed.
Q: Why doesn’t the Legislature just cut the budget?
A: It has. State spending peaked in 2015 at $15.7 billion. Right now, the House is considering a budget a bit above $11 billion. That’s a little bit more than last year’s budget because many lawmakers (at least in the House) say the budget has been cut to the point where public safety is starting to be affected. At the same time, the costs of things such as health care and education have risen since 2015, and many services are mandated by the Alaska Constitution or federal law. Substantially cutting costs in those areas would require huge programmatic reforms, and the Legislature would need time to develop those reforms — and it doesn’t have time this year.
Q: Did cutting the dividend the past two years help the deficit?
A: Not directly. Dividends are paid out of the Alaska Permanent Fund. For the past few years, the state’s deficit has been covered from a separate savings account, the Constitutional Budget Reserve. This year, the reserve doesn’t have enough money to do that again, so lawmakers will need to use some money from the Permanent Fund (or make huge budget cuts that aren’t being discussed right now).
Because dividends have been lower than normal for the past few years, the Permanent Fund has more money available to cover the state deficit.
Q: Will state employees see layoff warnings this year?
A: Signs point to yes. While lawmakers have repeatedly said they want to finish the budget within the 90 days specified by a 2006 ballot initiative, the pace of work this year has not been in line with that goal. This year, lawmakers in the House have take almost a week more time to pass their budget to the Senate than they did last year. In 2017, partially because of that slow pace, lawmakers didn’t finish a fully funded budget until the last week of June.
Layoff notices go out to all state employees unless the Legislature completes a fully paid state budget before the end of May.
Q: Why is this taking so long?
A: To use the words of nonpartisan Legislative Finance Director David Teal, “The problem is not that there is no solution; the problem is that there are lots and lots of solutions.”
Teal offered that comment in a Thursday night meeting of the House State Affairs Committee.
The Legislature can solve the deficit in many ways, and lawmakers have many different opinions. Imagine having a group of 60 people and telling them to agree on a single restaurant for dinner. Then, have them all agree on a single dish in that restaurant for dinner.
In that same Thursday night meeting, Angela Rodell, director of the Alaska Permanent Fund, suggested the Legislature might even be moving quickly by historic standards.
In 1969, the state of Alaska earned $900 million from oil and gas lease sales in the Prudhoe Bay region. That money was almost entirely spent within two years. It took until 1976 until Alaskans approved a constitutional amendment that created the Alaska Permanent Fund.
“It went for seven years before it became a constitutional amendment and hasn’t been changed since then,” Rodell said.
The Permanent Fund Corporation, which manages the fund, wasn’t created until 1980. The modern dividend system didn’t begin until 1982, 14 years after ARCO struck oil at Prudhoe Bay.
• Contact reporter James Brooks at jbrooks@juneauempire.com or 523-2258.
