‘We don’t have a crystal ball,’ Dunleavy team admits when pressed on budget plan
The Dunleavy administration argues the state can have a big ol' dividend with minimal budget changes. Just don't look behind the curtain.
Happy Friday, Alaska! It’s the end of the first full week of a special session that hasn’t been particularly special.
In this edition: Dunleavy’s budget plan wilts in the sunshine, a look at Murkowski’s headline-making week, the reading list and an old summery favorite.
‘We don’t have a crystal ball (so stop asking)’
It was a largely uneventful first full week of the special session. After a slow start, the budget conference committee met to get through some of the non-controversial differences in the budget with the first meeting conspicuously happening just hours after Rep. Steve Thompson, the Fairbanks Republican who was the minority’s chief negotiator, stepped aside while throwing some serious shade at the Senate for the delay (which maybe isn’t entirely fair). Meanwhile, the House Judiciary and Senate Community and Regional Affairs committees kicked various tires on Gov. Mike Dunleavy’s long-term fiscal plan, with the main takeaway being that even conservative legislators aren’t particularly convinced that you can somehow pay out $2,300 dividends without any new broad-based taxes as the governor has claimed.
There, that’s the whole legislative week in a couple run-on sentences.
Anyways, behind the scenes the big problem is—of course—the dividend. The Senate’s vote in favor of paying a $2,300 dividend that’s equivalent to the 50% of the POMV draw proposed under Dunleavy’s new plan (which, if we’re being clear was Mark Begich’s plan in the 2018 election, but hey who’s keeping track?) and the $1.5 billion overdraw has thrown a wrench into things. While I do think there could be a world where this is the eventual resolution for the dividend, you’re not going to get there by claiming it can be done with a measly $300 million in cuts or taxes… especially when you refuse to say what those cuts or taxes might be.
There’s a reason why the dividends contained in the proposals put forward by Reps. Kelly Merrick and Adam Wool are $500 and $1,000, respectively. Merrick gets there by linking the dividend to oil revenue and gets a big “no new broad-based taxes needed” for the effort. Meanwhile, Wool’s plan pitches a modest but politically difficult 2.5% income tax to get to a $1,000 PFD. Both highlight that—as we’ve all known for a while now—that paying out anything larger than the most basic of dividends is impossible without making significant changes elsewhere, but that’s precisely what the Dunleavy administration is pitching right now.
Pay a $2,300 PFD with a $1.5 billion overdraw this year, send the PFD and the POMV draw to the voters in the form of the constitutional amendment that would forever lock them in and pull out another $3 billion to bridge us to the day where we can perhaps maybe start thinking about $300 million in cuts and new revenues to make the plan work. Just don’t look behind the curtain because the whole thing is based on the rosiest of assumptions.
Oh, and also that $300 million cut/revenue call doesn’t include the governor’s expectation that $100 million will be cut in each of the next two years. So, it’s really $500 million, by the way. Like we said, don’t look behind the curtain.
The Thursday hearing of Senate Community and Regional Affairs Committee—a pretty Dunleavy-friendly committee with Palmer Republican Sen. Shelley Hughes as the chair—was surprisingly clear-eyed with Sen. David Wilson, R-Wasilla, asking hard questions about the reality of the plan being put forward. How could the state possibly begin to pay a $2,300 PFD with making changes that the administration itself has seemingly given up on?
“If this avoids a new broad-based tax, which is a revenue measure, I’m just lost with that. I’d prefer that if this is a comprehensive plan to have that whole plan before us now instead of waiting to the future to have something that may or may not be tangible,” he said. “It’s really hard for us to plan. … We can’t just go off of hope and dreams.”
You’ve gotta settle the dividend first, argued Deputy Revenue Commissioner Mike Barnhill. The political rancor over the dividend—which Dunleavy capitalized on to get elected—has taken up too much of the air on the discussion. Settle the dividend at a rate that few believe is doable without significant changes and then we’ll maybe possibly consider what we might perhaps do with revenue (which, again, the governor argues should all wait for another constitutional amendment that’d require any taxes be approved by both the Legislature and the voters).
“We can walk and chew bubblegum at the same time,” Wilson replied.
Wilson’s efforts here were, frankly, pretty admirable. He’s certainly not a member of the “We can’t pay a tax in service of a dividend camp” and has preferred cuts over new revenues, but he also seemed to be fully aware of the political challenges of making new cuts as well as how foolish it is to buy into an overly optimistic oil revenue forecast. Go back 10 years and you’ll find forecasts that suggested we’d be just fine by now.
Under Dunleavy’s plan oil revenue needs to steadily increase as does the investment income from the Alaska Permanent Fund despite what would amount to a combined $4.5 billion overdraw on the fund ($1.5 billion for this year’s dividend and $3 billion for the “bridge” funding) and growth of government would have to stay under 1.5% every year forever. What happens, Wilson asked, if that doesn’t come true?
"The answer to that is nobody has a crystal ball,” Barnhill replied. “We’ve presented a scenario based on what’s happening today, but 10 years from now, 20 years from now, circumstances will almost certainly be different. But what this does is it settles the issue of the permanent fund and the permanent fund dividend. … In the future if it turns out to be too much or too little, the Legislature will have to make adjustments either through spending or taxes.”
“I thought this whole plan was to avoid taxes,” Wilson replied.
The squishiness of the governor’s entire plan came into sharp focus in the meeting with the “We don’t have a crystal ball (so stop asking)” seeming to be the recurring theme of the Dunleavy administration. And that, in a nutshell, is the problem with the whole thing. As the reality of the cost of a larger dividend comes into focus, everyone’s getting nervous about what would be next. Democrats are concerned that the future will contain heavy and draconian cuts while Republicans are largely concerned about taxes being implemented, and ultimately neither side is particularly keen on locking themselves into an unknown future that relies on everything going so perfectly and unprecedentedly right.
We’ve reached this point by spending through $13-some billion of savings with each year’s thinking boiling down to: “The right time to find a durable, unlikable solution is tomorrow.” As tired it may be, it’s hard to forget the million-barrels-in-the-pipeline promise that was supposed to make everything great, an encapsulation of the “one more boom will save us” mentality that seems to have guided the Legislature thus far.
And as if almost on cue, the hearing also featured a portion where Sen. Hughes and Revenue Commissioner Lucinda Mahoney glowed about the news of a UK explorers announcement that they struck a major find that’s conveniently a stone’s throw from the Dalton Highway. When could that come online and when can we start factoring it into the revenue forecasts?
But from talking with several legislators from each party this week, I’m getting the feeling that few are buying into the governor’s numbers as politically convenient as they might be. The attitude seems to be something along the lines of, in my translation, “Damnit, let’s just finally think about doing something.” Whether or not that amounts to anything, particularly when Dunleavy is still demanding that we have to constitutionalize the dividend first, is a long shot.
Oh, also over in the House Judiciary Committee they spent a good amount of time arguing whether or not the spending limits on the Alaska Permanent Fund are binding or not. The Dunleavy administration argues that it’s “merely a guideline” that can be simply ignored while legislators and public interest litigant extraordinaire Joe Geldhof argued otherwise (though, if we’re being fair, I do recall most thinking that the POMV rules could be ignored when they were passed). Geldhof pledged a lawsuit if the Legislature overdraws the Alaska Permanent Fund anyways, though he told the legislators they have an alternative option:
“Here’s the easy way out. Change the statute,” he said. “Pass a statute that says we’re going to suspend the 5%. Go on record. I think the public deserves each of you to go on record saying we’re going to deviate from 5%, which frankly most economists think is too high anyway. That’s all the public wants here, for you to do your business out in the open here in an open and transparent way.”
Of course, all of this magical thinking and the corresponding lawsuit only happen if the Legislature actually does decide to sign off on the $2,300 PFD and the overdraw to pay for it.
I wouldn’t count on the dividend landing at $2,300 and the general consensus seems to be that it’ll eventually land at the $1,000 point with as minimal a draw on the permanent fund as possible. If folks are really gelling around that number, then I could see things wrapped by the end of next week (but I could also see them going all the way to mid-June because, after all, this is the Legislature).
Either way, the failure to pass the budget by the first of June would normally trigger state employees getting a layoff notice because of a looming government shutdown, but Dunleavy is taking the stance he did last time with refusing to send them out, arguing that the budget will probably be passed by the 10-day deadline where he must notify them under union rules.
The view from the conference committee
The budget conference committee held two meetings this week, one that largely accepted the Senate’s injection of American Rescue Plan Act dollars into the current year’s budget and another that started to chip away at the non-controversial parts of the operating budget. They left most of the interesting stuff like oil tax credit payments and a return-to-work program for people on unemployment unresolved.
Its next meeting isn’t expected until next Tuesday afternoon.
A banner week for Murkowski and company
It was a banner week for Alaska U.S. Sen. Lisa Murkowski and the rest of the delegation. They kicked it off with an Oval Office photo-op with President Joe Biden for the signing of the Alaska Tourism Restoration Act followed by the announcement that the Biden administration would, much to the chagrin of progressives, be clearing the Willow project to continue and then Murkowski also stepped out into the spotlight on the latest flashpoint over Trump and the future of the Republican party.
Murkowski was one of just a few of Republicans to back the Jan. 6 commission, arguing that the country must settle the truth behind the attack on the capitol. (Meanwhile Alaska U.S. Sen Dan Sullivan, like Rep. Don Young, voted against the commission.) Murkowski grabbed headlines for offering a particularly scorching takedown of her fellow Republicans, accusing them of standing by Trump for the short-term political gain.
“To be making a decision for the short-term political gain at the expense of understanding and acknowledging what was in front of us on January 6th, I think we need to look at that critically,” Murkowski said when asked about McConnell’s opposition to the measure, according to this report. She added: “Is that really what this is about, is everything is just one election cycle after another?”
Meanwhile, Alaska U.S. Sen. Dan Sullivan mustered the courage to break from his party to… champion trail funding. Well, I guess that’s something.
Look, ma! We made the paper! Leave it to The Washington Post to publish the clearest look at what happened with the “unprecedented harassment” the Anchorage election workers endured at the hands of Bronson backers. From The Washington Post: As GOP candidate used RV for 24/7 watch, Anchorage election staff say they faced ‘unprecedented harassment’
While Alaska had some good news on oil this week, the banner headline stories weren’t quite so great for the oil industry. ExxonMobil saw part of its board reshaped as a result of activist investors who’ve argued the giant hasn’t done enough to stay profitable in the changing world, investors voted similarly with Chevron and Shell was dealt a stinging defeat by a court in the Netherlands that will effectively result in the company cutting production. From NPR: The week that shook big oil
“The best way to support the Jewish community is by doing an act of goodness and kindness, being kind to your neighbor, being kind to your friend, being kind to family,” says Rabbi Yosef Greenberg, the director of the Alaska Jewish Museum that this week was tagged by Nazi stickers. From Alaska Public Media: After swastika sticker incident, Anchorage rabbi calls for acts of kindness
Another week, another wrongful firing lawsuit settled for $75,000. From the AP vis Alaska Public Media: Alaska settles lawsuit that alleged wrongful firing
Food security in Alaska is a huge issue, particularly for communities at the end of a very long and susceptible supply line. An Alaska Native-led initiative hopes to change that with small-scale greenhouses. From High Country News: Will a Native-led initiative spur an agricultural revolution in rural Alaska?
And now for something completely different
While the weather out isn’t the greatest as I’m wrapping up this newsletter, it’s been good enough lately to remind me of this fantastic video from the Defunctland YouTube channel that dives into defunct theme parks and rides. He done loads now, with the breakdown of the Superstar Limo ride at California Adventure (shakes fist at Michael Eisner) and a full-length documentary on short-lived Disneyland stage show Haylx being particularly great. But nothing quite beats this rundown of Action Park, which frankly feels like it could’ve been set in Alaska:
Have a nice weekend, y’all.