Messy House vote on budget a prelude to extended session
The House finally managed to pass the state’s operating budget April 2 with money for $1,600 Permanent Fund dividends, but the three weeks of messy debate leading up to the vote were likely more of a preamble to what’s in store for the remainder of the legislative session than a resolution to the big issues of the day.
The $4.5 billion unrestricted General Fund budget passed by the slimmest of margins on a 21-19 vote, with majority coalition member Rep. Gabrielle LeDoux, R-Anchorage, breaking from her caucus and voting against the budget.
Total General Fund spending in the House budget was $5.35 billion when including nearly $1 billion being moved to the Permanent Fund principal for inflation-proofing. The budget is also underfunded by $700 million because the 18-member House minority Republican caucus refused to agree to fund the balance from the Constitutional Budget Reserve, which requires a supermajority of 30 votes.
Democrat House Speaker Bryce Edgmon said in an April 3 press briefing that he was disappointed with LeDoux’s vote, but added that she told caucus leadership of her intentions prior to the vote.
The House Majority coalition is a non-binding caucus, meaning LeDoux won’t be kicked out as other House and Senate Republicans have been in recent years for breaking from caucus ranks on budget votes. LeDoux also chairs the Rules Committee and Edgmon indicated she would probably retain the leadership position.
House leaders had said they wanted to move the budget to the Senate in the customary mid-March timeframe but addressing 84 amendments — most from minority caucus Republicans aimed at cutting the budget — followed by a weeklong snarl over how big this fall’s PFD checks should be threw the whole process way off track.
House Majority Leader Chris Tuck, D-Anchorage, authored the amendment to increase the PFD amount to the projected statutory formula that amounted to about $2,700 per Alaskan. That amendment narrowly passed, also with 21 votes, and split both House caucuses with half of each voting for Tuck’s amendment.
The budget that passed out of the Finance Committee funded a roughly $1,200 PFD.
Republicans in the minority argued full PFDs should be paid until the budget is cut further. On the other hand, some Democrats have pushed for historically calculated dividends until a tax is enacted to diversify the state’s revenue streams.
They also contend a broad personal tax would more fairly spread the burden of the budget situation away from strictly cuts to the PFD, which is more important to low income individuals.
The leaders of both caucuses — Edgmon and Minority Leader Rep. Charisse Millett, R-Anchorage — voted for the larger PFDs — despite acknowledging that historical full dividends are likely unsustainable long-term.
“We need to have the difficult discussion on new revenues; I think that’s very apparent to anyone that can peel back the layers of the budget,” Edgmon said. “That, based with the fact that if I have to choose between the lowest tax rate for the oil industry or taking half the dividend to solve a fiscal gap that’s the largest in the country and I’m going to ask my constituents — many of whom are below the poverty level — to give up half of their Permanent Fund dividend so that we can grant the economic advantages to other entities around the state, I’m going to defer to my constituents and I’m going to support a larger dividend.”
Millett said in a press briefing that she voted for the $2,700 PFD because that is in line with the statute that is on the books and it should be paid until the law is changed, which she has submitted legislation to do.
The $1,600 PFD amendment passed narrowly March 30. It quickly became evident that the budget could not move out of the House with it as well, so the members of the majority — minus LeDoux — agreed to vote together and approve it despite the earlier votes.
On the budget itself, it is largely similar to the current budget in terms of overall state spending, with slight increases to Public Safety, Corrections, state retirement payments and a $19 million increase to the University of Alaska budget.
The UA budget bump drew criticism from some Republicans on the House floor, but it received bipartisan approval when added in the Finance Committee. The governor’s budget would have kept state spending on the university system flat for the first time in several years after significant cuts.
It also gives the Alaska Gasline Development Corp. authority to receive and spend up to $1 billion in fiscal year 2019 from outside investors to advance the Alaska LNG Project. Walker requested open-ended receipt authority, but legislators scaled that back to allow the project to advance without state funds while assuring they keep come oversight of AGDC.
The biggest change in the 2019 budget is a formulaic draw on the Permanent Fund Earnings Reserve, which is written in the budget as a 5.25 percent of market value, or POMV, appropriation from the $64 billion Permanent Fund to provide $1.7 billion for government services and another $1 billion for PFDs.
House Finance co-chair Rep. Paul Seaton, R-Homer, originally proposed a more conservative 4.75 POMV draw in committee, but the larger draw, which is at the very high end of what Fund managers have said is acceptable, allows for a larger dividend while still paying down the deficit at the same amount.
Walker’s request to inflation-proof the principal of the Fund with $942 million from the Earnings Reserve was also pulled out in House Finance, as Seaton contended the 4.75 POMV draw was small enough for the Fund’s remaining earnings to cover inflation.
However, with the 5.25 percent draw, the inflation-proofing transfer was added back in. It would be the first time in three years that the Legislature inflation-proofed the Fund, which the Alaska Permanent Fund Corp. Board of Trustees has advocated for.
Walker and the Republican Senate Majority have insisted on the 5.25 POMV draw for the first three years of Fund draws before eventually shifting to a 5 percent draw long-term.
The Senate also recently passed a $4.1 billion operating budget spending cap, which would appear to be the level at which the Republican-dominated body will shoot for in its version of the budget. That would set up another round of difficult budget negotiations with the House in late April and May.
Day 90 of the session is April 16, but the prospect of ending the session within that time has long since passed.
Oil taxes reemerge
House Majority members have made it clear they would accept an increase in oil taxes as an alternative — at least in the interim — to an income tax, which the Senate rejected last year.
House Resources co-chair Rep. Geran Tarr, D-Anchorage, introduced a new version of House Bill 288 April 3, which would gradually increase the gross minimum production tax from 4 percent to 7 percent depending on oil prices.
The original version of the bill raised the “tax floor” from 4 percent to 7 percent at all prices. It would have collected about an additional $90 million per year at $70 per barrel and $205 million to $256 million at average prices between $50 and $60 per barrel — where the delta between the current 4 percent and proposed 7 percent minimum tax would be realized.
Now, HB 288 would increase the minimum tax to 5 percent at prices above $40 per barrel; 6 percent at prices above $55; and 7 percent at prices above $65 per barrel.
The state has a net profits production tax at higher prices and a gross tax when prices are low. Currently, that “crossover” price, where the applied tax switches from the gross to the net tax calculation, is just less than $70 per barrel, according to the Department of Revenue.
The crossover price has been falling in recent years as companies have cut costs to stay in business while prices have been mostly less than $70 since late 2014.
Republicans and industry representatives insist the tax increase would hurt companies that have just adjusted their spending to be profitable in the $60 per barrel price range, which is expected to persist for some time.
Tarr said the graduated minimum tax acknowledges the challenges companies face at very low prices but that the current 4 percent tax is one of the lowest in the country.
Additionally, Seaton said the Finance Committee is likely to revisit the straight 25 percent oil profits tax the House passed last year as part of House Bill 111, which ended the refundable oil and gas tax credit program. The Senate stripped out the tax increase portion of HB 111; however, the House Majority hopes an oil tax increase can be part of an overall end-of-session budget deal with Senate Republicans.
Elwood Brehmer can be reached at [email protected].