Alaska House Republicans criticize majority’s decision to temporarily set dividend at zero in budget draft

House minority Republicans are decrying a procedural decision to temporarily zero out the Permanent Fund dividend size in next year’s draft budget while conversations are underway on its ultimate amount.

Majority members on the House Finance Committee have repeatedly underscored their intention to include a dividend in this year’s final budget.

In a 6-5 vote on Wednesday, majority members set the annual payout to Alaskans at zero, with the promise that the dividend size will ultimately be determined later in the session.

The move was opposed by all committee Republicans, who said that despite the fact the move was temporary, it masked the state’s fiscal challenges.

Lawmakers have not followed the existing state statute for determining the annual Permanent Fund dividend for a decade, as lower oil revenue forced them to turn to the fund’s earnings to pay for an increasing share of government services.

But Gov. Mike Dunleavy again included the statutory dividend in this year’s budget draft, asking lawmakers to draw roughly $1.5 billion from the state’s savings to cover its cost.

Republicans in the House have conceded that Dunleavy’s request for a payment of roughly $3,800 is unreasonable, but they have yet to land on a dividend size that would appease their minority caucus.

Leaders of the bipartisan majorities in the House and Senate, meanwhile, have said they will seek to adopt a balanced budget and avoid significant draws from state savings. Last year, that strategy led to a dividend of $1,000 per eligible recipient.

“Do I think that there’s going to be a full statutory PFD? Do I think there’s even a possibility of that? No, I don’t think so,” House Minority Leader DeLena Johnson, a Palmer Republican, said on Thursday. “Do I think that it could be higher and better? Absolutely. And do I think it’s the closest thing that we have to a spending cap in this universe that we live in right now? Absolutely.”

With the dividend set at zero, the budget draft that lawmakers will use as their template as they build next year’s spending plan is starting with a revenue surplus of more than $800 million, compared with Dunleavy’s starting point of a $1.5 billion deficit.

Republicans said that artificially large surplus, which also doesn’t take into account other significant funding items like disaster response expenses, could lead to misperceptions about the state’s fiscal constraints.

Rep. Will Stapp, a Fairbanks Republican who serves on the Finance Committee, said he is concerned that House majority members will use that budget surplus as the basis for adding more spending on state services to the budget.

“When I hear the co-chair of Finance talking about all the things that he’s going to spend money on, and he deposits the entirety of the PFD into the general fund, that makes me think that we’re not taking this deficit very seriously at the moment,” said Stapp. “I’m not super optimistic at the moment that they’re going to have downward pressure on the budget.”

House Finance Committee Co-Chair Andy Josephson, an Anchorage Democrat, said that the advantage of beginning the budget-making process with a dividend set at zero is that “now we can hear from all 11 members of the Finance Committee at the end of March, by amendment, and have a debate about what that number should be.”

“What constrains us is public perception and desire for a dividend,” Josephson said. “But the prospect of paying a statutory dividend is so obliterated in our fiscal position that it doesn’t constrain us anymore.”

Ultimately, Josephson said that the dividend this year is likely to be between $800 and $1,400 per eligible Alaskan, depending in part on whether lawmakers approve a draw from savings as part of the budget-making process or stick to available revenue.

Concrete discussions on the size of the dividend likely won’t begin in earnest until mid-March, when the Department of Revenue will issue an updated revenue forecast. The size of the dividend will be shaped by ongoing policy questions, Josephson said, like whether to increase education funding and whether to adopt a new public pension system.

“Once those policy calls are made, then we can better see what remains,” said Josephson.

Rep. Calvin Schrage, an Anchorage independent, and Rep. Neal Foster, a Nome Democrat, co-chair the House Finance Committee alongside Josephson. They voiced support for the budget draft on Wednesday.

“Everybody knows that the PFD is not in this. That’s the biggest elephant in the room, and I think we all need to talk about that, and it’s going to be an ongoing conversation,” said Foster.

As lawmakers continue discussions on next year’s spending plan, next week they are also set to debate a request from Dunleavy to draw more than $400 million from savings to cover a deficit in the current year’s budget.