JUNEAU — The Alaska House advanced the operating budget to the Senate on Wednesday, proposing a roughly $1,400 Permanent Fund dividend accompanied by a $450 million-plus deficit over the next two fiscal years.
This year, legislators are grappling with a dire fiscal outlook, which includes a significant deficit based on status quo spending.
The size of this year’s dividend is competing against widespread calls for a substantial increase in school funding and all other budget expenditures.
The House’s operating budget includes a one-time, $253 million increase in school funding, in case a permanent funding boost of that size is not approved this year.
Over two long days of budget amendment debates, House members proposed dozens of cuts to the spending plan in an attempt to shrink the deficit.
The majority of cuts suggested by the Republican minority were rejected by the Democrat-dominated House majority.
House members indicated that the Senate would now be effectively tasked with balancing the budget, which could result in reductions to the House’s planned school funding boost, the dividend, and state services.
Anchorage Democratic Rep. Andy Josephson, who manages the House’s operating budget, expressed pride in the spending plan that allocates $1.6 million for five additional Village Public Safety Officers and $1.5 million for day services for disabled adults, as well as $10 million in backup funding for the Alaska Marine Highway System.
“We all deserve more yet we are all in an unprecedented fiscal quagmire,” he stated.
The House’s operating budget also includes a contentious $79 million unallocated cut, placing discretion in the hands of Gov. Mike Dunleavy to reduce spending wherever he chooses.
However, the Legislature’s attorneys have cautioned that without clearer guidance, a nonspecific cut could be unconstitutional.
Without the unallocated cut, the House’s spending plan would exceed a $500 million deficit once other planned expenditures are accounted for.
The House approved the operating budget along caucus lines with a 21-19 vote, where all members of the Democrat-dominated majority supported the spending plan while all Republican minority members voted against it.
Minority members criticized the House for not doing enough to address the deficit.
Fairbanks GOP Rep. Will Stapp pointed out that the House majority had pledged to avoid sending an unbalanced budget to the Senate, arguing that the unbalanced spending plan is “a fiscal mirage” and that his House colleagues had sidestepped making difficult decisions.
“We’re going to pass a bill that makes a lot of promises to people — a lot of promises,” Stapp said.
“And unfortunately, it’s a bunch of promises that don’t come with the one thing that guarantees them: money.”
In response to complaints about the House not approving larger budget reductions, Josephson noted that state services have already been reduced through years of flat funding and cuts.
“The state needs to invest substantially more in education; to fix crumbling schools; to provide adequate child care; and to ensure food stamp benefits are paid to Alaskans,” he said while addressing the House.
“Some may argue that we should cut the fat. I ask the people, ‘What fat is that?’ There is little fat. We are at the bone,” he added.
On Monday, the House narrowly approved drawing funds from the state’s $2.8 billion savings account to cover the projected $250 million-plus deficit for the fiscal year starting July 1.
This action follows an already planned $192 million savings draw aimed at balancing the current fiscal year’s budget.
However, drawing funds from state savings requires support from three-quarters of both the House and Senate.
To achieve this, support from minority House Republicans would be essential, posing a significant hurdle.
The three-quarter vote threshold failed on Wednesday, but legislators may have another opportunity when a final budget vote occurs later in the legislative session.
Palmer Republican Rep. DeLena Johnson mentioned that this situation might compel the GOP minority to make “some really hard votes” to address the deficit.
Legislators have also pointed out that the state’s fiscal future looks bleak over the coming years due to declining oil revenue.
They cautioned that heavily drawing from savings this year could be a risky move, potentially compromising future financial stability.
The bipartisan Senate majority’s leadership has expressed that they will not support the House’s proposed $79 million unallocated cut, and have also indicated resistance to a savings draw to address the upcoming fiscal year’s deficit.
Instead, Senate majority members have introduced new revenue measures, including oil tax hikes, to help bridge the state’s fiscal gap.
However, the tax proposals face an uphill battle for approval, given the narrowly divided House.
Sitka Republican Sen. Bert Stedman, co-chair of the Senate Finance Committee, remarked on Tuesday that the Legislature must be prepared to make “many tough decisions” before the regular legislative session concludes in May.
“And I don’t think some of the folks in the building have quite grasped that yet,” Stedman noted.
The House approved minor budget reductions aimed at cutting vacant positions across several state agencies, while rejecting many other proposed budget cuts, both substantial and minor.
Big Lake GOP Rep. Kevin McCabe’s attempt to eliminate the state’s campaign finance regulator, which would have saved $1.3 million annually, was rejected, as was Glennallen GOP Rep. Rebecca Schwanke’s proposal to cut nearly $17 million from the Division of Public Assistance, which is already at risk of losing federal funding due to a significant food stamp benefits backlog.
Minority Republicans expressed opposition to the planned unallocated cut in the House’s budget and made unsuccessful attempts to remove it.
Eagle River GOP Rep. Dan Saddler expressed his astonishment at the proposal of such a cut, labeling it as “executive overreach” in ceding the Legislature’s appropriating authority to the governor.
In counterpoint, Rep. Zack Fields, D-Anchorage, remarked that there are differing legal opinions regarding the appropriateness of an unallocated cut.
He argued that the Legislature should not engage in “micromanaging departments” and that a non-specific cut would provide state agencies with the flexibility needed to make reductions.
Rather than propose an unallocated cut, Saddler put forth a 2.5% across-the-board reduction for agencies, aiming to save the state $50 million; however, this proposal was rejected along caucus lines, with only the Democrat-dominated majority opposing it.
A smaller 1% cut to agency spending also faced the same fate, being rejected by the same margin.
Fairbanks Democratic Rep. Ashley Carrick stated that the budget cuts suggested by the minority would only trim “pennies” from the deficit, adding that minority members had not presented concrete proposals for resolving the House’s considerable fiscal shortfall.
On Monday, the House did narrowly approve a cut for so-called optional treatments for gender dysphoria, though the implications of this planned reduction remain unclear.
House members also voted down a similar cut to public funding for abortions.
Additionally, the House adopted amendments that increased overall spending by $4.1 million.
This included restoring funding for five Alaska State Trooper positions at a planned Talkeetna trooper post, adding $230,000 for wildland firefighting costs, and reallocating federal funds at the Alaska Department of Transportation and Public Facilities to hire more workers for increased road construction projects this year.
On the House floor, the size of the Permanent Fund dividend was a major point of contention once again.
Last week, the House narrowly voted to reduce the Permanent Fund dividend to approximately $1,400 per person.
The overall House spending plan initially included a roughly $3,900 statutory dividend proposed by Dunleavy.
The Republican House minority had anticipated that budget amendment debates would commence on Monday.
However, three Republican lawmakers were absent from the Capitol on Friday, allowing the Democrat-dominated majority to proceed with the decision to lower the dividend.
The operating budget has now moved forward to the Senate for further consideration, with the regular legislative session required to conclude by midnight on May 21.
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