PFD in peril. The special session is a big bet by Dunleavy

The biggest enemy of the PFD has been the status quo, which Dunleavy almost ensures will continue with his hardline refusal to consider new revenues.

Good morning, Alaska! Hope y’all had an excellent weekend (I finally limited out on the Kenai, woo!) and are ready for up to 30 days of uneventful-to-somewhat-interesting legislative action! The third special session of the year starts today and, hooboy, this might be the most uncertain special session I’ve covered in the last decade.

In this edition: A look at the special session’s agenda, what’s not on the agenda, Dunleavy’s gambit for a larger dividend and the reading list.

The special session

First, the basics. The third 30-day special session is set to begin today when the House and Senate are scheduled to gavel in at 2 p.m. Though there’s a ton that legislators would like to be able to work on (and quite a bit that they wouldn’t), they’ll be limited to what Gov. Mike Dunleavy puts on the call. They don’t have the power to add items, so the task list is as currently follows:

  • A constitutional spending limit that would be pretty strict (which is why its found little traction with the Legislature).

  • A constitutional amendment to guarantee a dividend with half of the spendable income of the Alaska Permanent Fund (this is the 50-50 plan) that would also formally transform the Alaska Permanent Fund into an endowment model (something that the managers have been long requesting, which would also, in effect, set a spending limit on the Alaska Permanent Fund) as well as constitutionalizing the Power Cost Equalization program (though unlike the dividend, the size and scope of the program would be left up to the Legislature to decide, which hasn’t engendered much confidence that it’s really a guarantee).

  • An act or acts relating to revenue measures. According to Department of Revenue Commissioner Lucinda Mahoney, the administration will have several revenue bills on the agenda like legalized gambling and casinos, revisions to the corporate income tax structure to close gaps in the state’s oil and gas tax structure (specifically, it’d go after oil and gas S corps like Hilcorp) and a few others. Notably, Mahoney said the state is working on a 4% sales tax proposal but said it likely won’t be ready for this special session, which doesn’t seem to matter anyways as Gov. Dunleavy later pledged to block it unless he gets his way on the constitutional amendments (including one that isn’t even on the call).

Legislators can work within those bounds, which means they could potentially put forward their own revenue measure or alternatives to the PFD amendments. There are already several legislator-authored proposals on both fronts, but the governor’s hardline stance against any new broad-based taxes has likely chilled much of the appetite for taking on what would be a politically costly endeavor (and that’s supposing there was the appetite in the first place).

That also leaves quite a bit of uncertainty around the Legislature’s fiscal policy working group, the eight-member bicameral group that has been meeting during the interim for what have largely been basic overviews of the state’s budget. They’ve been working behind the scenes on an agreement, but we’ve yet to hear anything publicly on this. It was always a long shot for this group to come up with something that could be swiftly passed (especially with its high concentration of far-right Republicans who were never likely to play ball), but it’s worth pointing out that some conservatives signaled tepid support for a sales tax as an acknowledgement that something needs to be done to balance the books.

No PFD, for now

What’s most notably not on the special session call is the appropriations bill required to pay out a PFD, salvage the several other programs affected by the failure of the reverse sweep or restore vetoes (well, there’s another way to get at these that I’ll talk about below). We’re likely to hear a presentation at some point during the special session on the impact of Superior Court Judge Josie Garton’s ruling that found the Power Cost Equalization program was not subject to the sweep that will cover all the other funds that should be spared from the sweep, but it’s critical to note that Garton’s ruling doesn’t explicitly affect anything beyond the PCE fund. So, for now, that leaves no funding for the state’s college scholarship program, the state’s medical education program or spill response to name a few. Dunleavy could introduce a new appropriations bill but he wants the Legislature to first sign off on his constitutional amendments, a tall order given the lack of traction either measure has.

As for the vetoes, which includes the PFD vetoed by Gov. Dunleavy, the Legislature has five days to hold a joint session in an attempt to override them. This would be the easiest way to get some kind of dividend back on the books for this year, but it’s an incredibly long shot with it requiring the approval of 45 of the 60 legislators in a joint session (and I’ve heard no talk of holding a joint session). Pro-PFD folks are not likely to support restoring the dividend, which would sit at $525 (or $1,100 if they also approve the reverse sweep), because they’re still shooting for something higher.

Arguing in circles, preserving the status quos

Of course, a larger dividend will require an overdraw of the Alaska Permanent Fund, which pretty much gets us right back to square one of this year’s fight over the budget. While there are staunch supporters of the larger PFD, the defenders of the Alaska Permanent Fund itself are just as fierce in their refusal to overdraw the fund and undermine its future returns. If this all feels like we’re debating in circles, it’s because we are. The underlying debate over the state’s budget, the purpose of the PFD and the fight over new revenues hasn’t changed much in the last eight months. And, critically, still unanswered is the most important question: Who Pays?

The biggest enemy of the PFD has been the status quo. With little appetite for additional cuts to state services and, so far, no appetite for new revenues, the state’s deficit has fallen on cuts to the dividend. If the state wants to pay out anything but the most meager of dividends, it’ll require a break from the status quo in the form of deep cuts (again, little appetite) or new revenue. It’s a reality that even the most conservative members of the Legislature seem to finally understand, which is why we’ve seen the increased talk about the sales tax. Regardless of how we frame the PFD in the state budget, we’ve gotta figure out how to pay for it one way or another.

Gov. Dunleavy’s refusal to consider new revenues without first implementing sweeping changes to how government works (none of which actually help close the deficit) means that the status quo is likely to live on, continuing to put pressure on the PFD. That means the answer to the question of who pays will continue to be the PFD and given all the brinksmanship heading into this session it may very well end up being the whole thing.

Dunleavy and his allies are betting big that their pressure campaign will finally force the Legislature’s conservative budgeters to bow and turn on the spigot on the Alaska Permanent Fund, a move that those fiscal conservatives—some of whom look down on the PFD as “free money”—have shown no indication of actually supporting at any point in this budget process.

It’s a big bet. Let’s see if it pays off.

Reading list