Proclamations from Gov. Mike Dunleavy calling special sessions of the Alaska State Legislature for late May and early August were posted in the otherwise quiet office of the House Clerk on Friday, May 21, 2021. The first special session has started but the Capitol building was quiet as most of the work before lawmakers will take place in committee. (Peter Segall / Juneau Empire)

Proclamations from Gov. Mike Dunleavy calling special sessions of the Alaska State Legislature for late May and early August were posted in the otherwise quiet office of the House Clerk on Friday, May 21, 2021. The first special session has started but the Capitol building was quiet as most of the work before lawmakers will take place in committee. (Peter Segall / Juneau Empire)

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

Governor, lawmakers say the time is right for lawmakers to resolve issues

The first of the summer’s two special sessions got off to a quiet start this week, as several lawmakers returned home for the weekend Friday, and the majority of legislative work will be done in committee.

Members of the conference committee to negotiate changes in the state’s budget between the Alaska Senate and House of Representatives met Thursday for a simple introductory meeting, the first step in what could be a lengthy process.

The committee will review the various differences in the versions passed by each body and then negotiate changes to the budget. The final bill must be ratified by each body which must accept the legislation as is, without the ability to submit floor amendments. The budget bill that passed Wednesday included a Permanent Fund Dividend of $2,300, which requires the state to break the 5% of market value drawn from the Alaska Permanent Fund each year, something lawmakers across the political spectrum oppose.

The four co-chairs of finance committees from both bodies Sens. Click Bishop, R-Fairbanks and Bert Stedman, R-Sitka, and Reps. Kelly Merrick, R-Eagle River, and Neal Foster, D-Nome, and Sen. Donny Olson, D-Golovin, and Rep. Steve Thompson, R-Fairbanks, will make up the conference committee.

“I don’t imagine we’ll find a way to finance a $2,300 PFD,” said Sen. Jesse Kiehl, D-Juneau, “I don’t believe there will be the votes to overdraw the (Earnings Reserve Account). There’ll have to be massive cuts elsewhere.”

Kiehl and the finance co-chairs assigned to the conference committee Bishop and Stedman voted against the amendment for a $2,300 PFD, which Kiehl said would amount to a draw of roughly 7% on the ERA. The Senate Finance Committee on Tuesday included an amendment for a $1,000 PFD, which would keep the state within the statutory 5% while providing mostly flat funding for the state budget. The budget passed Wednesday still keeps the state budget flat, but draws additional funding from the ERA to pay the larger dividend.

Dividends were important, Kiehl said in an interview Friday, but overdrawing from the ERA now meant draining future funds from the state’s revenue. In his speech on the floor Kiehl compared the overdraw on the earning’s reserve to the sacking of Rome by the Visigoths in the 5th Century.

In an interview with reporters Thursday, Foster said he and other House members were uncomfortable with the overdraw.

“At the end of the day it’s still an overdraw, we’ve got to compromise here so we’ll figure something out,” Foster said.

House Minority Leader Cathy Tilton, R-Wasilla, was unavailable for an interview.

The right time?

The halls and offices of the Alaska State Capitol were mostly empty Friday morning, as the bulk of lawmakers’ work for the next few weeks will take place mostly in committee. Both bodies of the Legislature are scheduled to meet Monday morning, but with the regular session now ended, lawmakers are confined in what they can address by Gov. Mike Dunleavy’s call to special session.

Dunleavy called two special sessions last week, one beginning immediately following the regular session and lasting for 30 days, giving lawmakers additional time to finalize the budget. But in addition to the budget the governor has also called lawmakers to work on three proposed constitutional amendments he says will stabilize the state’s fiscal situation.

[Dunleavy makes changes to Permanent Fund proposal]

But Senate President Peter Micciche, R-Soldotna, said Thursday lawmakers were not yet ready to tackle the larger fiscal issues and suggested lawmakers return better prepared for the second special session on Aug. 2. Foster made similar statements about much of the work taking place in committee, and not necessarily requiring lawmakers to be in Juneau until later in the May special session.

Dunleavy has said the three constitutional amendments will put the state on solid fiscal footing and ensure controlled spending in the future. One amendment, the one on the call for the May session, would combine the two accounts of the Alaska Permanent Fund into one large account, the yearly earnings from which would be even divided between PFDs and state services. Another would require a public vote for any new taxes and a third an appropriation limit.

The ideas proposed by the governor’s amendments aren’t new. Dunleavy submitted the same three amendments in the last legislative session as well but deep ideological divisions have prevented lawmakers from making any progress on the issue. But last week Dunleavy and several other lawmakers said they were willing to step away from the demand PFDs be paid based on a statutory formula.

The governor is now proposing using 50% of the percent of market value draw for the PFD and the rest for state services. The $2,300 PFD was based on that formula, and submitted by Sen. Mike Shower, R-Wasilla, who lost his committee appointments last session for voting against a budget without a statutory PFD.

But that formula still leaves a hole in the state’s budget, which lawmakers have currently been funding by drawing additional funds from state savings accounts like the Constitutional Budget Reserve. The current budget proposes filling that gap this year by overdrawing on the ERA, which supporters of the $2,300 PFD say has been bolstered by high stock market prices.

Micciche told reporters he was willing to overdraw for one year if it meant the Legislature was actually able to pass a comprehensive fiscal solution. But there had been a significant change in attitudes regarding the PFD and taxes in the state, Micciche said, pointing to the governor’s news conference and lawmakers being willing to step away from the statutory PFD.

“I spent my entire career cutting taxes, (wanting) to impact Alaskans as little as possible,” Micciche said. “You’re seeing people like me realize that the solution has to be a mix.”

[‘Time is running out’ lawmaker warns of state finances]

There have been significant cuts to the state budget, he said, but the state is still in need of additional revenues. The governor has placed “potential measures to increase state revenues” as part of the call for the August session, but Micciche noted the administration hadn’t made any suggestions for additional revenue.

Micciche said he could support some kind of broad based tax, likely a sales tax, and adjustments to certain oil taxes and credits to find additional revenues. There was support for those ideas among his own constituents, according to Micciche, who said he brought the ideas up earlier in the week on the Michael Dukes radio show.

“The listeners of that show are very pro-PFD and suspicious (of government spending),” he said. “For the conservative talk show host to be talking about an all-in plan, I think we’re all coming to the realization that we need to all give. Getting the PFD off the table is the No. 1 goal.”

But the goal of finding additional revenues may be complicated by another of the governor’s requests. One of the constitutional amendments proposed by the governor would require all new taxes in the state to be put to a public vote, a lengthy process which could overturn legislative plans for new revenues.

“We’ve been working with the Senate and the governor and that’s been an issue that’s been brought up,” Foster said. “There’s no resolution at this point, but we all understand that is a challenge.”

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

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