The Alaska Senate increases the budget as the governor signals support for a one-time $175 million boost to schools

JUNEAU — The Alaska Senate passed its version of the operating budget Wednesday as Gov. Mike Dunleavy signaled his support for a one-time $175 million school funding increase.

The House and Senate spending plans were similar and remained largely unchanged from the status quo budget proposed by Dunleavy in December. The dividend was again the biggest difference. The final two weeks of the legislative session are expected to see the major battles between lawmakers on key policy issues such as energy, education, criminal justice reform and ballot measures.

The leaders of the House and Senate will begin meeting next week to negotiate differences between the budgets of the two legislative chambers. This allows the same budget bill to pass through both chambers and to the governor's desk.

Both the House and Senate have included $175 million in additional one-time funding for schools in their budgets, meaning the funding will not be subject to further budget negotiations. The one-time funding represents a $680 increase in the Base Student Allocation, the state's per-student funding formula – but only for one year.

Last year, lawmakers approved the same one-time increase in school funding, which was then cut in half by Dunleavy's veto pen. At a news conference Wednesday, Dunleavy indicated he would support $175 million in additional school funding included in a final budget passed by the Legislature this year.

“I've told people I'm open to increasing one-time funding, particularly to help with inflation issues,” he said.

With public schools reportedly in crisis due to years of flat funding and high inflation, lawmakers included a permanent $680 increase in the BSA in a bipartisan education bill that Dunleavy vetoed in March. The governor said he could not support the measure because it would not expand access to charter schools. Alternative education bills have been proposed, but lawmakers' hopes that a law could be passed this year have faded.

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After a nearly three-hour session, the Senate budget passed Wednesday by a vote of 17-3. All of the no votes came from the three Republican senators who are not part of the bipartisan Senate majority.

Sitka Republican Sen. Bert Stedman, co-chair of the Senate Finance Committee, pushed for support for the operating budget. He said it would fund essential services while providing a “good dividend” for Alaskans.

“We live within our means. That’s what it looks like,” Stedman said before the final vote.

The Senate's budget for the fiscal year beginning in July has a deficit of about $6 million, which Stedman called “decimal dust” that should be resolved through negotiations with the House. For the current fiscal year, the Senate's spending plan calls for a surplus of around $100 million. The money could be spent before July or it would forfeit into the state's main savings account.

The Senate budget includes $7.5 million for the child care sector, aimed at boosting wages, and $10 million for the Alaska Seafood Marketing Institute, intended to support sales of Alaska seafood amid difficult market conditions. The Senate also appropriated $1.3 million to fund snow removal efforts in south-central Alaska.

Since 2017, lawmakers have calculated the amount of the dividend as part of the annual budget planning process, rather than using a fixed formula.

In December, Dunleavy proposed a budget with a Permanent Fund dividend of about $3,400, modeled on the 1982 statutory formula. The governor's dividend was expected to result in the state running a deficit of about $1 billion, which would require a significant withdrawal from the state's main savings account of $2.5 billion. There is little interest in the Legislature, and particularly in the Senate, in using savings to balance the budget.

The Senate's PFD of $1,360 follows the 75-25 formula. Three-quarters of an annual withdrawal from the Permanent Fund would go to government services, and the remainder would go toward the dividend. Another $220 was added as an energy relief payment to make the Senate's check for about $1,600 available to eligible Alaska residents.

Last month, the House passed its version of the operating budget with a $2,300 payment to Alaskans aimed at creating a 50-50 dividend. The House budget would likely leave the state with a deficit of about $270 million.

Republican minority senators voted to equalize the House dividend. Sen. Mike Shower, a Republican from Wasilla, said a higher dividend now would spur discussions in the Legislature to implement a comprehensive financial plan — possibly including a new PFD formula, taxes and a tougher legislative spending cap.

Senator Robb Myers, a North Pole Republican, spoke against the budget. He said a higher dividend should be part of a financial plan and would show Alaskans that “the private sector is more important than the public sector.”

Shower's proposed amendment to increase the Senate dividend was soundly defeated. Anchorage Democratic Sen. Bill Wielechowski, a longtime supporter of a full statutory dividend, said he wanted to approve a larger PFD but that it would not be affordable.

“Unfortunately I cannot support this because it jeopardizes future dividends,” he said.

A provision in the Senate budget could increase the dividend next year. If oil revenues exceed expectations, some additional revenue would be reserved for dividends next year and some would go into savings. A similar provision was included in the Senate budget last year, helping increase the proposed 2024 dividend by over $200.

Another Senate provision would transfer up to $2 billion from the expendable portion of the Permanent Fund to the constitutionally protected portion of the fund. The provision was intended to provide inflation protection, but these funds could not be spent without a majority vote of Alaska residents.

Myers proposed an amendment to block this transfer, but it was defeated along the lines of the caucus. He said if there was an economic downturn and the spendable portion of the Permanent Fund was withdrawn, it could have serious consequences for government services and the dividend.

“We’re going to get into a world of pain very quickly,” he said.

Minority senators have introduced or prepared 21 amendments. All 21 were rejected by a majority.

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The Senate budget now goes back to the House of Representatives. If a majority of House members reject the Senate's budget amendments, the planned conference committee would begin work. If a majority of the House votes for the Senate budget, it will go directly to the governor for consideration.

According to an agreement between lawmakers, the House of Representatives is expected to pass the capital budget by May 9. This budget will be used to fund infrastructure and maintenance projects throughout Alaska. The Senate passed a capital budget last month with a focus on school maintenance and housing.

Anna Harden

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