Obstacles abound for legislators seeking an Alaska budget solution
By Andy Josephson
The coming fourth special session, scheduled for Oct. 1, is very unlikely to bear fruit by resolving our state’s fiscal conundrums. Here is why:
First, let’s look back just one month for some context. Just prior to gaveling in for the previous special session, a two-chamber, bipartisan group completed a four-page “white paper” after meeting for some 73 hours. The Fiscal Policy Working Group, with traditional conservative and progressive members, was charged with laying the groundwork for the adoption of a comprehensive fiscal plan for the state in the coming decades. If asked to provide just two of the many findings and recommendations of the Working Group, most would likely pick these two: 1. the Legislature should advance toward a 50-50 plan, where 50% of the monies drawn annually from the Permanent Fund would be spent on state services, and 50% would be spent on Permanent Fund dividends; and 2. to balance the total costs of state government including the PFD, the Legislature should raise about $500 million-$700 million in broad-based taxes. Again, there are many other important components to the Working Group’s white paper, but these two are, inarguably, the most eye-catching.
Many legislators, myself included, looked askance at these findings and conclusions. Each legislator would have his or her own concerns with the report. Mine, and many others’ concerns would include: 1. the report assumes oil production that may never materialize, especially when legacy fields will see continuing drop-off in production; 2. the report makes assumptions about the satisfaction of our continuing obligation to retire our unfunded liability to state pensioners that might be too rosy; 3. the report assumes fairly small capital budgets, leaving huge unmet needs to responsibly build out and repair the state’s infrastructure; and 4. the report fails to consider costs associated with a host of existing unsolved problems and other unmet needs —for instance, the belief that I share that we should have universal pre-K in Alaska.
More significantly, the Working Group’s findings and recommendations leave little fiscal breathing room. From my perspective, it puts future Legislatures in the place of living the equivalent of paycheck-to-paycheck. It’s not the baton I was hoping to hand off to our successors.
To be clear, the Working Group worked tirelessly to reach agreement on a comprehensive plan with its members’ disparate views. And, while its revenue and spending numbers are optimistic, there is some evidence that the group’s plan pencils out.
Still, while the work was commendable, the politics are nearly insurmountable. The reasons for this parallel why the fourth special session is unlikely to succeed.
First, importantly, were the Working Group’s product to advance, we would need a governor who would sign a broad-based tax measure to help fund the operations of the state. We don’t have that. We have the opposite of that. Gov. Mike Dunleavy has declared that he will not sign and would apparently challenge any revenue measure not approved by the voters, presumably by referendum in November 2022.
This obstacle alone is a sort of death blow to codifying the work of the Fiscal Plan Working Group.
Where the governor won’t discuss new revenue, in order to advance the Working Group’s recommendations, Republican legislators would have to openly support new revenue, and there is no concrete evidence that they will.
Second, a number of legislators, including myself, would be reluctant to approve a 50-50 PFD plan, certainly without substantial new revenue. The 50-50 plan would, as noted, put enormous pressure on other features of the state’s operations, writ large. Further, the 50-50 outcry has included a belief that the PFD formula must be constitutionalized, not simply reformed in statute and then cited by reference in the constitution. That is a deal-breaker for many, Republicans and Democrats alike.
Third — and here’s the critical part — the governor’s proposed comprehensive plan, which he wants passed during the Fourth Special Session, requires the passage of constitutional amendments creating a new spending cap, requiring voter approval of new major broad-based revenues, and related to the PFD and the consolidation of the Permanent Fund into one fiscal account — currently it’s separated into two accounts: a corpus and an Earnings Reserve Account.
Each of these amendments, fortunately, requires the approval of 27 House members and 14 Senate members. These numbers are not nearly attainable at the present time. For example, if 26 House members might support the governor’s reforms, one could see that pressure might be applied to a 27th member, resulting in adoption. However, it’s likely that fewer than 20 House members would support the governor’s reforms.
How can it be known that so few House members support the governor’s positions? Consider this: The governor wanted a 50-50 Permanent Fund dividend for next month. That is, at a minimum, he wanted a 50-50 PFD one time, in one single appropriation. This request failed. If the governor could not get his larger PFD one time, for one year, where a mere 21 votes in the House and 11 votes in the Senate were required for approval, how could he get it forever — in constitutional perpetuity — where 27 votes in the House and 14 in the Senate are required, followed by approval of the voters? The answer should be self-evident.
In a recent commentary, my colleague, Rep. Ivy Spohnholz, correctly identified that an alternative to what would likely be a failed special session might reflect more modest PFDs — a 75-25 plan leaves enough for PFDs in the $1,300 range and growing over time — with increases to revenue sources that fill the gap without the imposition of a significant broad-based tax. Under this alternative plan, the people of Alaska would continue to receive robust public services, reasonable PFDs, and see little of their own wallets pinched for new, large, broad-based revenue. I commend to the reader this alternative approach as a reasonable pathway forward.