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EXPLAINER: The complexities in Alaska's budget proposal

·4 min read

JUNEAU, Alaska (AP) — Alaska budget negotiators reached a tentative agreement on a spending package that would keep state government running and allocate federal recovery aid dollars.

But the proposal ties strings to funding for programs like the annual dividend paid to residents, a move meant to entice support including from minority lawmakers whose backing is needed to access a budget reserve fund that would be used in part to pay for this year's checks.

House Minority Leader Cathy Tilton, a Wasilla Republican, referred to the approach as “bully tactics.” Sen. Bert Stedman, a Republican and one of the lead budget negotiators, said it "certainly encourages some folks to seriously consider what … position they’re going to take” on the constitutional budget reserve fund.

The House and Senate could vote on the plan as early as Tuesday. Lawmakers have until Friday to finish their work in this special session.

Here is a look at some of the plan's complexities:

BUDGET RESERVE FUNDS

Dividends traditionally have been paid using earnings from the state’s oil-wealth fund, the Alaska Permanent Fund. But the constitutional and statutory budget reserve funds play key roles in the dividend proposal that advanced from the budget conference committee on Sunday.

Accessing the constitutional budget reserve requires three-fourths support in each the House and Senate. That vote has sometimes been seen by minority legislators as leverage to draw attention to concerns they want addressed. It has been a point of contention in recent years as lawmakers have used the reserve fund to fill budget gaps and as numbers have tightened between the House majority and minority caucuses.

This year, 21 of the House's 40 members belong to the bipartisan majority. Tilton's Republican caucus has 18 members. One Republican, Rep. Sara Rasmussen, is not part of either caucus.

The vote also will be watched in the 20-person Senate. Those in the 14-member, Republican-led majority are not bound to vote for the budget, Daniel McDonald, with the Senate majority press office, confirmed. That is a break from the practice of prior years.

Under the state constitution, funds taken from constitutional budget reserve are to be repaid. The budget plan includes language that has been used in prior budget cycles meant to prevent a long list of funding pots used for such things as student scholarships and rural electric costs from being swept into the constitutional budget reserve. The so-called three-quarter vote is needed to do this.

The statutory budget reserve is among the pots subject to the sweep. At the start of the current fiscal year, it was empty, according to the Legislative Finance Division. But the budget proposal resuscitates it, in part with money previously authorized to be spent but not needed in the current year, the division's director, Alexei Painter, said.

About $320 million of the $739 million allocated in the budget for dividends would come from the statutory budget reserve, with $48 million from the constitutional budget reserve and the rest from the state general fund. If approved, dividends would be around $1,100, Stedman said.

Checks would drop to $525 if the three-quarter threshold in each chamber is not attained, a Legislative Finance Division analysis showed.

The proposal also ties other budget items to a three-quarter vote, including money for oil and gas tax credits and some infrastructure projects.

PERMANENT FUND

A longstanding formula for calculating dividends was last used in 2015, with lawmakers since then largely setting an annual amount and the dividend becoming an ongoing and politically charged debate that overshadows other issues.

In 2018, lawmakers began using permanent fund earnings, long used to pay dividends, to help cover government expenses, and they sought to limit withdrawals for dividends and government costs.

One of the biggest debates this year has been whether to exceed that limit.

The version of the budget that passed the Senate last month would have. It proposed a dividend of about $2,300, in line with a 50/50 split between what is drawn for government and dividends. The version of the budget that passed the House did not address this year's dividend.

Painter said the withdrawal limit would be adhered to under the conference committee proposal.

Some lawmakers argued that if ever there was a time to pay a larger dividend, it was this year, following a trying time for many Alaskans because of the pandemic. Some expressed openness to exceeding the draw if it led to a fiscal package and long-term change to the dividend program.

But others said exceeding the draw limit of about $3.1 billion could set a worrying precedent and make it easier for future Legislatures to use the earning reserve as a crutch and delay tough fiscal decisions.

The conference committee also proposed moving $4 billion from permanent fund earnings, which are spendable, to the fund's constitutionally protected principal. Such transfers aren't subject to the withdrawal limit.

Becky Bohrer, The Associated Press

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