Despite low expectations for special session, Alaska House plugs away on fiscal policy

  • A major sticking point all year has been the disparate projections on the state’s fiscal future coming from administration officials and the Legislature’s finance experts.

Official business in Alaska’s Capitol has been limited, but there is, in fact, still an ongoing special legislative session.

House lawmakers have led most of the work, aimed at addressing the state’s long-standing structural fiscal imbalance. Senate business has largely been kept to the requisite technical floor sessions — brief formal proceedings to keep the session active — and hearings of the joint Redistricting Board.

House Ways and Means Chair Rep. Ivy Spohnholz, D-Anchorage, has held meetings in recent days out of the Anchorage Legislative Information Office, focused on legislation promoting the multi-pronged approach to raise revenue and curb spending growth that most House majority members have generally endorsed. Most legislators have attended hearings by phone or videoconference from across the state.

Spohnholz on Oct. 13 reemphasized her support for a 25-75 split of the $3 billion-plus in annual Permanent Fund earnings available for spending under the Legislature’s 2018 formula. It calls for spending no more than 5% of the fund’s overall value in a given year, which she says is a key element of a comprehensive fiscal plan, along with legislation for an education head tax, fuel tax increases and revisions to the state’s oil tax system. Based on currently proposed legislation, those elements would combine for a $72 million deficit next fiscal year and a small surplus in fiscal year 2024, Spohnholz said, “so we could start to address our capital deferred maintenance deficit and also start to make strategic investments as needed.”

Next year’s Permanent Fund dividends would be approximately $1,248 per eligible Alaskan under a split in which 25% of available fund revenue would go to dividends, and PFDs would gradually grow to $1,575 per person by 2028, according to Spohnholz. While PFDs would start out larger than this year’s amount of $1,114 per person, the 25-75 split is still just half of what Gov. Mike Dunleavy has demanded from legislators.

Dunleavy said his intent in calling the latest special session, which started Oct. 4., was in part to push legislators to add to the PFDs being paid out this month. However, it became clear near the end of the prior session that ended in mid-September that substantive policy changes would be unlikely this year with many lawmakers fatigued from one of the busiest legislative years in the state’s history.

A major sticking point all year has been the disparate projections on the state’s fiscal future coming from administration officials and the Legislature’s finance experts. Officials in the Department of Revenue focused on unexpectedly strong current oil prices; impressive near-term Permanent Fund and state pension fund returns; and forecasts for gradually increasing North Slope oil production as the basis for estimates of future deficits peaking in the $500 million-per-year range with Dunleavy’s proposed 50-50 PFD-government split of fund earnings.

Legislative Finance Division analysts, on the other hand, continued to project near-term deficits of $1-billion-plus per year with no new revenues under the governor’s plan. The disagreement over the parameters of the long-term fiscal problem has made settling on a range of options to solve it similarly challenging.

Additionally, in the previous session, administration officials presented conceptual options for new revenues — such as a sales tax and oil tax changes — that they said Dunleavy would be open to with stipulations, but Dunleavy has repeatedly downplayed the need for taxes in recent press briefings.

Administration officials have mostly been absent from fiscal policy hearings so far this session.

Spohnholz also introduced a new version of House Bill 141, her legislation to tighten the state’s existing spending limit during an Oct. 14 Ways and Means hearing. The bill would base future appropriations limits on prior years spending and adjustments for inflation and population changes. The starting baseline for 2023 would be nearly $5.8 billion, which is an increase over the earlier versions of the bill in recognition of the “historically low spending,” when accounting for inflation and population, the state has enacted in recent years, Spohnholz said.

Lawmakers approved nearly $4.6 billion in unrestricted general fund spending so far this year.

HB 141 would not count PFDs or the state’s portion of school construction bond debt reimbursement as part of the annual spending limit and would allow lawmakers to exceed the cap for certain capital and deferred maintenance projects.

Members of the House Judiciary Committee heard an alternative plan for capping state spending that attempts to capture the performance of Alaska’s private sector in calculating how much money is needed for state government from Anchorage Republican Rep. James Kaufman Oct. 15. Kaufman’s uniquely linked House Joint Resolution 401 and House Bill 4006 would set a lower statutory spending limit of 11.5% of total state product and a higher constitutional spending cap at 14% of state GDP. The ostensive spending limit range would prevent significant spending growth in high revenue years but also provide a buffer for unforeseen expenses, according to Kaufman.

While it is very unlikely the Legislature will pass significant fiscal legislation in the remaining two weeks of the special session, the current work can build momentum for the next regular session in January.

“This appropriation limit is not attempting to drive draconian cuts; it’s more about trying to smooth out our economic planning, our forecasting, our spending,” Kaufman said. “It would shave off (spending) peaks and move them forward over time. It would create money going forward over time.”

The current year budget would have fit within Kaufman’s lower proposed statutory limit with $16 million to spare if it were effective, and the 2022 constitutional cap would be nearly $6 billion, according to materials accompanying the legislation.

Kaufman’s legislation also excludes school bond debt, PFDs and other state debt payments from the appropriations limits.

Elwood Brehmer can be reached at [email protected].

10/20/2021 - 9:57pm