Budget work continues in preparation for big PFD debates ahead

Published: Feb. 17, 2020 at 6:46 PM AKST
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As the Legislature writes its budget for the next fiscal year, debates about the future of the Permanent Fund dividend are expected in the second half of the legislative session.

In the House of Representatives, subcommittees are finalizing their work before the full House Finance Committee begins to debate the operating budget. Major spending areas in the budget have stayed largely unchanged after the governor proposed a virtually flat budget in December.

The governor’s budget contains a $2 billion full statutory PFD, the largest spending item in a budget that contributes heavily to a $1.5 billion deficit. The governor had proposed spending down the Constitutional Budget Reserve (CBR) to bridge the state’s fiscal gap.

The CBR proposal has got a lukewarm reception by lawmakers.

House Speaker Bryce Edgmon, I-Dillingham, said in the past four or five years that the Legislature has turned to savings to fill for a shortfall. With the CBR at roughly $2 billion that may only work for one more year.

“We don’t really have that option,” Edgmon said.

The Senate majority is supporting two smaller revenue raising proposals from Fairbanks Republican Sen. Click Bishop that would increase the motor fuels tax and reintroduce the education head tax.

Both revenue proposals are estimated to raise roughly $45 million per year or 3% of the current deficit.

An oil and gas tax initiative known as the Fair Share Act aims to increase taxes on Alaska’s resource industry. Advocates say it could bridge the state’s fiscal gap.

Senate President Cathy Giessel, R-Anchorage, sounded wary of the proposal, particularly with shaky demand from China with the coronavirus. “Taxing it more right now will only extinguish further development and further production - and that means we lose,” she said.

Giessel also said debates about oil tax reform take one or maybe two sessions to be completed.

Neither the Senate nor the House majorities have introduced major revenue raising measures. “Any discussion about a significant revenue measure I’m not convinced is going to happen this session,” Edgmon said.

The Permanent Fund dividend is the most obvious and inviting spending item to shrink to rein in spending. Debating a formula change remains a stated priority for both the House and Senate majority caucuses.

“I'm hopeful that we'll reach a resolution on it this year,” Giessel said.

Debates about the PFD formula have not been had by all legislators in 2020. A working group presented conclusions on the dividend before the Legislature gaveled into session but it did not provide direction on how or if the formula should be adjusted.

Edgmon signaled on Friday that PFD formula debates would be left to the second half of the legislative session. Rep. Lance Pruitt, R-Anchorage, told reporters on Thursday that he wanted those conversations to begin sooner rather than later.

In the background to those debates is the governor’s pledge to have Alaskans vote on any change to the PFD before it’s implemented. His veto power may prove critical if a new way to calculate the dividend comes across his desk.

Giessel said an advisory vote is not being considered by the Senate majority. “The Legislature is working on deliberations about a formula change, that's as far as we're going,” she said.

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