Fog of war in House majority as dividend becomes plaything

We’re witnessing the fog of war in the final hours of the Alaska Legislature’s Special Session. Unfortunately, it looks like another special session will be called on Saturday, probably within minutes of adjournment at midnight.

One observer in Juneau characterizes the Democrat-controlled House majority as acting like caged animals at this point in the session: They’ve lost on nearly everything and are cynically trying to salvage a political win.

They’ve lost on their income tax, their motor fuel tax, their higher oil taxes.  And last weekend, their ally Gov. Walker dropped his support for their core agenda in the interests of avoiding a government shutdown.  He put a compromise on the table that left them as the odd man out. Or perhaps more accurately, their ungracious and uncompromising response left them the odd man out.

In a desperate measure to bring themselves into better alignment with the sentiments of voting Alaskans, they voted yesterday to fund a Permanent Fund dividend for Alaskans at $2,000.

That way they can go back to their districts and say they defended the dividend. They figure they might be able to survive reelection that way, even though statewide polls show that their tax-and-spend agenda is out of step with public opinion.

The manner in which they are attempting to increase the dividend is also a recipe for disaster: They put it into the capital budget. That means the capital budget will have to go to conference committee, and that’s a dangerous sport.

In fact, the capital budget rarely goes to conference committee because it’s a final receptacle for miscellaneous items that have to be completed in the final days’ negotiations.

Normally, the dividend is in the operating budget. The capital budget is for …. well, capital projects.

But House Democrats upended the process at the 11th hour, creating large disparities in both the operating and capital budgets that must be reconciled with the Senate. The Legislature is supposed to adjourn on Friday, but there is little likelihood of that now. There is just not enough time to undo the budget snarl. The House’s capital budget, with its large dividend payments, hasn’t even been sent over to the Senate yet for concurrence.

NEW NORMAL: A POLITICIZED DIVIDEND

Up until last year, the dividend appropriation was not politicized. The Legislature established a formula based on five years of average net earnings, and then appropriated whatever the formula called for. The Department of Revenue would do the final math in September, using the appropriated amount. In this way, the dividend amount was not a political football, with elected officials trying to outdo one another for political popularity.

But last year on June 29, Walker announced a veto of $1.362 billion from the Permanent Fund dividend, reducing the appropriation to $695.6 million, or roughly $1,000 per person. It was a maneuver to preserve money in savings, and give the governor leverage.

This year, the House majority has taken a page out of the governor’s book by setting the amount of the dividend politically. They know full well that if it reaches his desk he will veto it, but they’ve at least gotten themselves on record in favor of something that Alaskans are generally supportive of: a big check.

“At this point it looks like we may be leaving this building with only a budget and without a comprehensive plan, including, most importantly, revisions to oil taxes,” said Gabrielle LeDoux, who introduced the Permanent Fund dividend appropriation into the capital budget on the House floor. “Without this amendment we are headed to a budget that reduces the people’s PFD.”

It passed with bipartisan support, with members all over the map. Lawmakers from the Valley, long defenders of a traditionally set PFD, voted in favor of it. But for Democrats, it was a case of “they were against it, before they were for it.”

Senate President Pete Kelly said it looked like a desperate move, to inflate the budget by so much that an income tax would be necessary.

With the House majority’s draw down of state savings from the Permanent Fund Earnings Reserve Account, the House’s higher operating budget and higher dividends would drain 5 billion out of the nearly $12 billion in that reserve account.

Further, if the governor loses in court next week over his veto last year of the Permanent Fund dividend, the State will be on the hook for another $750 million.

That would bring the draw down of the fund to nearly $6 billion, or half of the earnings reserve and 10 percent of the entire Permanent Fund itself.

The practical reality is that even if the Senate agreed to allow the Permanent Fund dividend as part of the capital budget, the House Democrats know the governor will veto it, unless he loses in court.

This is election politics now rearing its head in the final hours of the special session. There’s simply no predicting what will happen at this point as it’s moving fast and furious.

Onward, through the fog!