It remains uncertain whether the Alaska Legislature will approve $5,500 payments to Alaskans this fall.
That’s the Permanent Fund dividend amount, plus an energy assistance check, in the state Senate’s budget proposal.
The House approved a lower amount — $2,600 — and it can now either vote to seek a compromise, or agree with the Senate’s version.
For individual legislators, in an election year, stalling a bigger PFD in the name of sustainable budgeting is a tough call, especially with oil prices high. But for others, it’s clear cut: If oil prices drop, the state will spend down savings and have to make up the difference with taxes, drastic cuts or both.
Reporter James Brooks of the Alaska Beacon says recent House votes have been postponed as leaders fear their coalition will cave.
The following transcript has been lightly edited for clarity.
James Brooks: Late Wednesday night, the House was expected to vote, had been on the calendar to vote. The Speaker of the House, Louise Stutes, abruptly canceled that meeting, rescheduling the start for 10 a.m. Thursday. That didn’t happen, and the start is now at a time to be determined. And the belief is, and the House majority has been open about talking about its desire to have a sustainable dividend, an amount that can be paid consistently, year over year. $5,500 isn’t that. But at the same time, there’s a lot of support for that number. Everybody wants $5,500, if it’s possible. But because the majority is reluctant to do that, they’ve effectively postponed that vote to negotiate and see if it’s possible to send this to a drawing board and come out with a lower number.
Casey Grove: And these numbers are somewhat based on the price of oil right now, right? Or projections for the price of oil. So what happens if there’s a bigger PFD, but the price of oil goes down in the future?
James Brooks: That’s the big drawback. So right now, this budget, this $5,500 PFD, is predicated on the idea that oil is going to average $101 per barrel from July 1 of this year through June 30 of next year. And even if that happens, even if it’s $100 a barrel, there’s not enough money to pay for this big payout. The budget calls for the state to spend from savings in order to make up the difference. A little less than a billion dollars.
But if oil prices go down, the amount of money that needs to be pulled out of savings increases. So let’s say oil is $93 a barrel instead of $101. At that point, the state drains its Statutory Budget Reserve, the first of the big savings accounts that it uses to balance the budget.
Well, what happens if oil is below that?
So in order to spend from the next savings account, the Constitutional Budget Reserve, the Legislature needs a supermajority vote, which it doesn’t have right now. But let’s say it gets that. Then it can go all the way down to $75 per barrel, and there’s enough money if you completely drain that Constitutional Budget Reserve.
What if oil is below that even?
And then, at that point, the state has no choice but to overspend from the Alaska Permanent Fund. But it would be a bellwether decision. It would be crossing the Rubicon. It would be whatever your cliché of choice is, because the state has managed the Permanent Fund since 2018 based on the idea of sustainable returns. In 2018, it set a limit on withdrawals from the Permanent Fund in order to ensure that investments generate money into the future. And so if it breaks the 5% limit, it breaks state law. And then it reduces the Permanent Fund’s earnings in the future, below what’s expected. And you really start to get close to what legislators call the “fiscal cliff,” the point at which the state has no more available savings and needs to either significantly raise taxes or significantly cut the budget beyond anything even over the past few years.
Casey Grove: Is there much of a sense that part of the reason that there hasn’t been a vote, as of right now, on whether to go to conference committee or accept the Senate’s budget, is there a sense that that is tied to this being an election year, that people are having a hard time, you know, wrestling with that decision?
James Brooks: Right, right. A lot of the people in the House right now, especially members of the Republican House minority, campaigned two years ago on large PFDs and said they would do what they could to to have a large payout, to stick with a traditional formula that hasn’t been used since 2016 but remains in state law. That formula calls for a $4,200 payout. Legislators have said that that’s unreasonable, but now there’s enough money to pay for it if things go well. And so that’s the choice. Will folks who have championed the traditional formula follow through, even though it’s a pretty big risk at this point?
Casey Grove: Looking forward here, how do you see this going, James?
James Brooks: So the House last convened on Wednesday evening, that means they have a set deadline to hold their next floor session, their next gathering, under the Alaska constitution. By my counting they have to meet by Sunday, again, while the Legislature is in session. And so I’m kind of seeing that as a soft deadline that they have to meet again, and if they don’t meet before, then that’s when we’d expect this decision to take place.
Casey Grove: And I should probably ask, has the governor signaled one way or the other if he would veto, you know, a lower PFD amount or what?
James Brooks: Not publicly. There’s been plenty of legislators walking over from the Capitol to the governor’s mansion and back, presumably meeting with the governor. For example, Thursday morning, I saw Senate President Peter Micciche and Senate Minority Leader Tom Begich leaving from breakfast with the governor. I’m not sure what they talked about. But there’s a lot of other legislators who have been coming and going. And Rep. Zack Fields, Democrat from Anchorage, has suggested that the governor is promising to veto or not to veto specific items in order to sway support in favor of a $4,200 Permanent Fund dividend. According to Fields, the governor has expressed some interest in possibly vetoing the energy relief payment, still leaving a $4,200 dividend. Less than $5,500 but more than the amount the House had proposed in its version of the budget. I haven’t been able to confirm that. But that’s what Fields has told me. I think the main thing is that a lot of these discussions are happening behind closed doors and not in public. One on one discussions and talking with legislators, it seems like individual positions can change hourly, if not daily, based on the latest discussion and the latest thoughts. So it’s very fluid right now.
Casey Grove: Interesting. Well, we will, as I always say, we will stay tuned.
Also, James, this is the first time that we’re talking to you since you have transitioned over from the Anchorage Daily News to the Alaska Beacon, which is a new news outlet in Alaska. Could tell us real quickly about what that is, what is the Alaska Beacon?
James Brooks: So it’s a nonprofit news agency funded by donations. And the idea is to put reporters in statehouses across the country. The Beacon is an affiliate of the national States Newsroom, which is the nonprofit that’s doing this work. Alaska is just one of many states now, more than half the states have an affiliate. And so it’s me, Andrew Kitchenman, Yereth Rosen and Lisa Phu. All experienced journalists, and we’re going to try this out and see how it works.
Casey Grove: Very cool. And I definitely appreciate you still talking to me, and talking to me from the Capitol. It’s like you never left, because you didn’t.
James Brooks: No, I’m still doing what I’m doing.