From left to right: Sens. Jesse Kiehl, D-Juneau; Gary Stevens, R-Kodiak; Mia Costello, R-Anchorage, and Bert Stedman, R-Sitka, speak on the floor of the Alaska Senate on Monday, May 24, 2021, the first day of one of two special sessions called by Gov. Mike Dunleavy. (Peter Segall / Juneau Empire)

From left to right: Sens. Jesse Kiehl, D-Juneau; Gary Stevens, R-Kodiak; Mia Costello, R-Anchorage, and Bert Stedman, R-Sitka, speak on the floor of the Alaska Senate on Monday, May 24, 2021, the first day of one of two special sessions called by Gov. Mike Dunleavy. (Peter Segall / Juneau Empire)

Lawmakers: Budget negotiations to begin Wednesday

Overdraw on earnings reserve divides Capitol

The legislative conference committee tasked with reconciling two versions of the state’s budget will likely begin Wednesday, according to Rep. Neal Foster, D-Nome, chairman of the committee. Still, the likelihood of lawmakers finalizing the budget before Memorial Day was slim, he said.

In a phone interview Monday, Foster said the committee hoped to meet Tuesday but some members were still traveling and might not be in Juneau until Wednesday. Some lawmakers had hoped to finish by the holiday weekend, Foster said, and while that wasn’t very likely he said the committee still intended to work as if Friday was their deadline.

“It’ll be really challenging to do that knowing we have so many pieces on the table,” Foster said.

The Alaska Senate passed a budget last week but members of the House of Representatives failed to concur with its passage, sending the bill to a bicameral committee where a few lawmakers hash out compromises in the budget. Once the conference committee agrees on a final budget, both bodies of the Legislature will have to vote a simple majority to approve it without being able to make any changes.

Staff had only just finished preparing the paperwork to allow the conference committee to do its work, said Sen. Bert Stedman, R-Sitka, co-chair of the Senate Finance Committee. In a meeting with reporters Monday morning, Stedman said conference committee members would address first areas where there’s mutual agreement and then work toward more contentious issues such as the Permanent Fund Dividend later in the negotiations.

[Special session begins, aims to solve Alaska’s fiscal deficit for good]

“I don’t think the operating budget is going to be a complicated discussion,” Stedman said. “We’ll have a budget by July 1. We have to go through the process, it may come together faster than some of us think.”

Deeper divides

The Senate voted for a $2,300 PFD, an amount following the formula for calculating the dividend contained in Gov. Mike Dunleavy in his proposed constitutional amendments which uses half of the state’s yearly percent of market value draw from the Alaska Permanent Fund. But to pay of dividend of that size and keep the state budget mostly flat the state will have to overdraw from the Earnings Reserve Account, something several lawmakers, including Stedman, have said they’re against.

“50-50 doesn’t work,” Stedman said, referring to the proposed formula.

Division of Legislative Finance projections show the 50-50 model still leaving a gap in the state’s budget, requiring additional draws on the Earnings Reserve unless the state can raise additional revenue. However, Dunleavy has said his proposed amendments are meant to work together, and also proposed combining the principal and the earnings reverse accounts of the Permanent Fund which would increase the amount of the state’s current 5% percent of market value draw.

But the Permanent Fund is the state’s main source of revenue, Stedman said, and taking funds out of the fund today comes at the cost of future state revenues, something he and lawmakers in both bodies are opposed to.

“I’m not concerned about the amount of this year’s dividend as I am about the future of the dividend,” Stedman said. “When you overdraw the Permanent Fund, you damage future income for every Alaskan for now and perpetuity.”

Foster said he and most of the House Majority Coalition felt strongly about not overdrawing the ERA.

There are still lawmakers who say they support a dividend based on a statutory formula, but it’s not clear if they’ll vote against a budget that doesn’t pay one. House Minority Leader Cathy Tilton, R-Wasilla, said in a phone interview Monday the caucus didn’t have unified opinions on the PFD, but there was a desire to resolve the issue and have a formula the state follows.

[Dunleavy makes changes to Permanent Fund proposal]

“We still have the statutory formula on the books, we should be following the formula until we have a new amendment,” Tilton said, speaking for herself. “I would like to see it stay at least at that 50-50 point, but I have concerns that amount may be even lower.”

Tilton said her caucus was eager to resolve the state’s long-term fiscal issues. The House Minority generally doesn’t favor an income tax, she said, but is willing to consider a sales tax and wants to look at ways to increase resource development as a way of increasing revenue.

Several Republican lawmakers including the governor have been staunch defenders of the statutory formula, with some senators losing their committee assignments in the last Legislature for voting against a budget that didn’t pay a full PFD. But Dunleavy and some of those lawmakers said at a May 12, news conference they were willing to step away from that formula if it meant putting the state on stable fiscal footing.

Issues remain

But, Foster noted, the vote for a so-called “reverse sweep” which requires two-thirds of members in both bodies has yet to be addressed. The sweep is an accounting mechanism used by the state which automatically empties a number of state accounts at the end of the fiscal year. In previous years the sweep went unnoticed and lawmakers voted to reverse the move when passing a budget. But in 2019, Gov. Dunleavy expanded the number of programs susceptible to the sweep and there were initially not enough votes for a reversal when the Legislature passed its budget.

Sitting on the conference committee are the four co-chairs of finance committees from both bodies, Stedman and Sen. Click Bishop, R-Fairbanks and Foster and Rep. Kelly Merrick, R-Eagle River, and Sen. Donny Olson, D-Golovin, and Rep. Steve Thompson, R-Fairbanks, who represent their respective minorities.

The outcome of the budget negotiations could have an impact on the discussion for the second special session in August where lawmakers hope to address the fiscal issue and proposed amendments,” Stedman said.

“You have a lot higher degree of success if members are not upset about issues, they’re more willing to sit down and compromise,” Stedman said. “We’re going to button up the budget, and then, we’ll see what the attitude is. It might not be very positive.”

• Contact reporter Peter Segall at psegall@juneauempire.com. Follow him on Twitter at @SegallJnuEmpire.

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