Slow third special session could lead to a fourth

Legislators are likely to know next week whether or not they should prepare for a fourth overtime period this year.

Gov. Mike Dunleavy’s spokesman Jeff Turner said Sept. 7 that the governor may see the need for another special session this fall, particularly if the Legislature appears to be gaining more momentum towards the votes to pass the big ticket items in a fiscal plan, but he’s going to let the current session play out a little longer before making a decision.

“There’s a good week left; a lot can be done in a week,” Turner said. “We need to see what happens. The PFD hasn’t been acted on in the Senate.”

The first couple weeks of the special session that started Aug. 16 were largely consumed by hearings and debate over the Dunleavy’s budget vetoes, most notably his decision to veto the entire PFD appropriation on the basis the dividends of about $525 per eligible Alaskan are far too small.

The House eventually passed a spending bill Aug. 31 for dividends of approximately $1,100 per person, the same amount settled on by the budget conference committee back in June. House Bill 3003, the vehicle for the PFD, so far has sat in the Senate Finance Committee for a week. As of this writing it was scheduled for a hearing Sept. 8.

Finance experts in the administration and the Legislature also continue to present conflicting projections as to the scale of the budget deficits that would remain if lawmakers passed Dunleavy’s “50-50” plan to split the roughly $3 billion per year and growing pot of spendable Fund earnings evenly between the PFD and other government programs.

New Deputy Revenue Commissioner Brian Fechter told members of the House Ways and Means Committee Sept. 3 that some legislators are mischaracterizing the forecasted budget deficits as being $1 billion or more per year for the foreseeable future, when in fact “you’re real target is really in the order of $500 million” per year in new revenues.

“We’re not talking about a giant tax with a huge rate,” Fechter said. “We can pull on some more modest levers.”

Committee chair Rep. Ivy Spohnholz, D-Anchorage, responded by noting that Legislative Finance Division officials don’t expect growing Permanent Fund earnings and new oil revenues to close the annual budget deficit to less than $500 million until fiscal 2028 — preceded by three years of $1 billion-plus deficits — by which point the state would have accumulated more than $4 billion in budget deficits if the governor’s plan to put the PFD-government split in the constitution had been approved last spring as he originally hoped.

At this point there is likely not enough support among legislators for the biggest components of Dunleavy’s fiscal plan, particularly if the governor doesn’t agree to some new corresponding revenue measures.

In contrast, the Department of Revenue suggests the Permanent Fund’s strong returns, the near-term boost in oil prices and a long-term boost to North Slope production will limit the deficit spending to at most $826 million in a given year and cumulatively to the $3 billion range. That’s why Dunleavy has also proposed a one-time, $3 billion draw on the Fund beyond the annual 5 percent spending limit passed by the Legislature in 2018.

However, the $3 billion draw is a nonstarter for several key legislators wary of the precedent it would set to potentially erode the Fund.

Dunleavy contends his constitutional amendment to limit future draws to 5 percent of the value of the Fund would prohibit future governors and legislators from doing the same and siphoning from the fund over the long-term.

As for taxes, Fechter said the governor could be willing to accept a modest statewide sales tax from the Legislature without voter approval — as Dunleavy has previously suggested any new taxes should need — if it is part of a fiscal plan that includes a 50-50 dividend and a significantly tighter spending limit.

Anchorage Democrat Reps. Geran Tarr and Harriet Drummond introduced a 2 percent sales tax bill to raise approximately $300 million earlier in the session.

Elwood Brehmer can be reached at [email protected].

09/08/2021 - 10:00am