Cliff Groh

Cliff Groh

The third special session of the 32nd Alaska Legislature is snarled and highly likely to produce a fourth special session.

The sticking points are the size of the Permanent Fund Dividend and legislation relating to the COVID-19 pandemic.   (We are not going to get to a sustainable fix of the State of Alaska’s long-term structural deficit before the special session must end tomorrow (Tuesday) night.)

Conversations with legislators in both parties and various other close observers indicate that factors in the decision over the size of this year’s Dividends include:

  • Desire to pay a large Dividend to aid Alaskans during a pandemic

  • Desire to help Gov. Dunleavy in his request for a large Dividend

  • Fear that paying Dividend of that size because it would require overdrawing the Permanent Fund

  • Fear of taking action that could help re-elect Gov. Dunleavy

  • Fear of either making a constitutional convention more or less likely, depending on the legislator’s preferences

  • Fear that not paying the $2,350 Dividend that Gov. Dunleavy seeks would make it more likely that Gov. Dunleavy would call a fourth special session, which some legislators would like to avoid

  • Fear that paying a Dividend of $2,350 would tend to require taxes, which legislators from higher-earning districts tend to be particularly opposed to

The upshot is that there may well be no decision on a Dividend from the Legislature in the next 30 hours or so.  If the Legislature does agree on a Dividend, the Governor may veto it again if it is $1,100 or below and then call a fourth special session.  The widespread belief is that we are headed for a fourth special session, probably in Juneau.  That fourth special session could start immediately (that is, Wednesday) or sometime later in 2021.

Bonus Explanation of the Dynamics Around a Long-Term Fiscal Fix

There is a push by Gov. Dunleavy, some Republican legislators, and some Democratic lawmakers for a $2,350 Dividend this year, which is the amount that would be paid under the proposed constitutional amendment allocating 50 percent of Permanent Fund earnings to Dividends and 50 percent to conventional public services/projects.   

The House has voted this special session for $1,100, with a question about the source of the funding that would cut the Dividend this fall to about $600.   The Senate voted for $2,350 back in May, and Jeff Landfield of the Alaska Landmine wrote yesterday that he had heard that the Senate no longer has the votes for the $2,350.   Landfield sees Sen. Lyman Hoffman, D.-Bethel, as a key swing vote.   Sen. Hoffman sits on the Senate Finance Committee as a member of the otherwise all-Republican Senate Majority and is traditionally a man in the middle courted by all sides.   

Sen. Hoffman is one of a large contingent of lawmakers concerned about overdrawing the Permanent Fund—that is, spending a percentage of Permanent Fund earnings high enough that it erodes the value of the Permanent Fund and thus reduces the flow of earnings permanently.   To avoid such overdraws, Sen. Hoffman has advocated for “stair-stepping,” which refers to moving toward paying Dividends based at a lower level than 50/50 would produce and then raising it to the 50/50 level if the State of Alaska enacts legislation generating significant revenues to help fill the deficit associated with the 50/50 allocation.     

The co-chairs of the Senate Finance Committee—Sens. Bert Stedman (R.-Sitka) and Click Bishop (R.-Sitka) offered this weekend a version of stair-stepping in the form of the “W” version of a committee substitute of Senate Bill 53.   Under this plan, there would be a two-track arrangement for Dividends.   Without new revenues, Dividends would be $1,100 this year and next year; $1,200 in Fiscal Year 2024; $1,300 in Fiscal Year 2025; and $1,300 as adjusted for inflation for each future year after Fiscal Year 2025.

With new revenues of at least $700 million each year, on the other hand, the Dividends would be paid under the 50/50 allocation starting in Fiscal Year 2025.   Crucially, the trigger for that 50/50 plan to start would be a joint certification of the Commissioner of Revenue and the Director of the Legislative Finance Division that legislation to generate that amount had been enacted.   Also crucially, that new revenue must not be from the Permanent Fund, which means revenues from taxes.

This stair-stepping plan will not pass this special session and may be impossible with Gov. Dunleavy in office.    But that plan, the report of the Comprehensive Fiscal Plan Working Group, and the work of the House Ways & Means Committee have provided some of the best sources for a comprehensive fiscal package/grand bargain that could close the State of Alaska’s structural fiscal deficit.

The bottom line is making a 50/50 allocation of Permanent Fund earnings work without an overdraw of the Permanent Fund drives you toward a broad-based tax like a statewide sales tax or a personal income tax.   If you are willing to accept a lower allocation for Dividends (such as 25 percent), the House Ways & Means Committee has shown that you can more easily fill the hole without an overdraw through more modest measures like raising oil taxes through a partial lowering of the per-barrel tax credit, an employment tax for education, and an increase in motor fuel taxes.    



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