As the State Legislature continues to debate the operating budget in a special session that began May 16, Senator Gary Stevens (R-Kodiak) stopped by the Kodiak Daily Mirror to provide an update on where lawmakers stand on next year’s Permanent Fund Dividend and where a battle with Governor Mike Dunleavy over education spending could end up.
Speaking with KDM on Friday, Stevens said that he did not anticipate the Legislature would accept the Governor’s proposal for a $3,000 PFD. On Tuesday, Stevens was proven right by the Senate, which voted to reject an amendment to a senate bill that would have done just that. In response, the Governor announced that he will be hosting a “rally to restore the PFD” that will be held today in Wasilla.
Prior to parsing his thoughts over the Permanent Fund, Stevens spoke about some of the other issues that have been debated during the special session.
“The issues he (Governor Mike Dunleavy) called us in for are the crime bill, the operating budget, the capital budget and the mental health budget,” Stevens said. “There’s only really one thing left standing and that’s the operating budget.”
The crime bill to which Stevens was referring is House Bill 49. The bill is a repeal of Senate Bill 91, a now controversial piece of legislation, one of the goals of which was to address the recidivism rates of criminals.
“The idea was to try to find a way to stop that revolving door of people going to prison, coming out, committing the same crime, going back to prison,” Stevens said. “It didn’t seem like we were getting anywhere. It was clear that we needed to help folks prepare for life outside, to address their addictions to alcohol and drugs, to help them get a job.”
Stevens is forthcoming in admitting that the bill wasn’t entirely successful, not least of which because not enough money was put aside to help with rehabilitation efforts. He said that, in a perfect storm of circumstances, crime rates increased due to outside factors like the ongoing opioid crisis during this period.
“It wasn’t entirely true that Senate Bill 91 lead to more crime –– that happened simultaneously,” Stevens said. “Here in Kodiak, my house was broken into. We’ve all seen horrible things happen with the opioid crisis.”
House Bill 49 is far tougher on crime, lengthening prison sentences for a number of crimes and rolling back a lot of what SB91 introduced. The bill was passed by the Senate and is now awaiting the Governor’s signature. While Stevens believes the bill will help with current crime levels and is confident that the Governor will sign it into law, he’s also concerned about the strain that the reforms are likely to put on the judicial system
“The problem is, of course, it’s going to be costly. In a two year period it’ll be about a $100 million,” Stevens said. “We’ll have to open another prison. Eventually, we’ll have to figure out: are we going to send the worst of the worst of our prisoners to private prisons outside (the state). So that could be a result of it. It’s going to be expensive, but I think the public are saying, ‘we’ve had enough of these crimes and you need to tighten up on things’.”
Beyond the crime bill, the special session has also seen Legislature come to an agreement on the state capital budget, which Stevens described as “terribly small this year.”
“We don’t have enough money to big projects or hardly any projects. There are very few projects being done around the state and mostly what we’re doing is matching federal funds,” he said.
At a local level, seeking money for capital projects is something that the City of Kodiak has become very focused on in the past couple of years. Not only is it looking to replace its crumbling fire station, but the age of some of the City’s infrastructure –– particularly its multi-decade old water and sewer system –– is beginning to show.
“There will be some federal funds for that (infrastructure), and we’re going to match those funds,” Stevens “But I know the City’s biggest interest right now is the fire station –– and legitimately so. We went down there and you could see through the walls. That’s definitely a project that needs to be done and I’ll be really happy if we can help the City do that, but this is not the year for it and they know that.”
That leaves the operating budget –– which, Stevens said, is now all that remains on the discussion table. He said there’s just one thing keeping the Legislature from passing an operating budget for the state.
“We’re in agreement with almost everything on that operating budget, with the exception of the Permanent Fund Dividend,” Stevens said, “There’s a possibility that we will pass the operating budget just without the dividend in it. We’ll put the dividend in a separate bill, which we’ll then deal with at a later date.”
Stevens said that the reason this move has become appealing is that if a budget is not passed by July 16, funds for the salaries of government staff will not be available –– which is something that concerns him.
“It’s like a federal shutdown, only on a state level. We’ve never had a state shutdown. Nobody wants it. The Governor doesn’t want it and the Legislature doesn’t want it,” Stevens said.
The problem, Stevens said, is that it’s not just the debate over the amount of next year’s PFD is not just the Legislature vs Governor –– there remains ongoing disagreement amongst lawmakers.
“We’re all over the place on how much that dividend should be. We have folks in our caucus and in the house as well who want a $0 dividend; others who want the Governor’s $3,000 dividend. We just don’t have a clear majority as to how much that dividend should be,” Stevens said. “The problem is that Permanent Fund is just crucial to us. It’s $65 billion now. It produces $3-4 billion in earnings, depending on how the stock market does. It’s a major driver of our economy. We’ve reached the point now, which many folks are not aware of, that we are earning more money from interest on the permanent fund than we’re earning from oil.”
For Stevens, this is key. He said that he’s in favor of keeping the PFD at its current rate of $1,600 specifically so they can pump some of the earnings back into the Fund so it continues to grow in the future. He noted that there is a precedent of putting additional funds into the fund as an “inflation-proofing.”
According to Stevens, there is talk among the Senate Finance Committee to make efforts to take $14 billion of the earnings reserve accounts, which currently sits at $16 billion, and transfer it into the Permanent Fund, to increase future earnings. Members of the House have also discussed this possibility, although the figure they’re discussing is a little lower.
“As time passes, it’s going to be even more important to us … and it could pay for government, more and more,” Stevens said. “We’ve had various economists who have said we can do a $1,600 dividend for the next six or seven years. It’s in the books –– it’s there. We could do that without any problem. People could plan with it. They’d know that they have $1,600 a year for the next six or seven years.”
The Governor does not share these feelings. On the contrary, he is currently making efforts to have a $3,000 PFD constitutionally protected for future years.
“That’s really dangerous,” Stevens said, noting that no one can predict the economic future of the state. “I’m really hesitant to tie anything up in the constitution. There are several issues that the Governor wants to constitutionalize and I’m not in favor of any of them.”
Stevens said that passing laws around use of funds allows the Legislature more flexibility if and when situations change –– noting that, for example, statutes can be changed more easily with a vote.
“People in Kodiak may be madder than hell about this, but I don’t agree with a $3,000,” he said. “But that’s our job: to look at the facts and do what’s best for the state –– not necessarily want everyone wants, but what’s best for the state.”
In order to pass a budget, the next step is for the Conference Committee, a group made up of members of both House and Senate, to reach agreement on spending. Following that, both the House and Senate must vote on the agreed-upon budget, before it is sent to the Governor. At that point, the Governor has the right to line-item-veto any part of it; in riposte, the Legislature can override any veto with a vote of at least three-quarters.
“That’s a very high bar. It’s almost impossible really –– but I think it depends on what he chose to veto,” Stevens said. “If he chose to veto funding for K-12 education, I think that’s something we would override. I think there would be enough people upset with that.”
Equally as pressing, Stevens said, is the Governor’s threat not to execute the next fiscal year’s education funds, which were passed by the Legislature last year. Dunleavy claimed that the move to appropriate funds for a future administration to execute was unconstitutional. Stevens, however, said that the Legislature has a plan in the event that the Governor decides to withhold these funds.
“The House and the Senate just recently passed a motion to turn this matter over to the Legislative Council to bring a lawsuit against the Governor should he not fund education,” Steven said. “We’re working on the lawsuit right now, should we need it. We’re getting all the legwork done.”
The Legislative Council is made up of seven House Reps and seven Senators. Stevens is currently the president of the council. Stevens said that if the Governor doesn’t have the money sent out to school districts by July 15, the council will file the suit.
The suit will request that the court place an injunction on the Governor’s action of blocking the funds while the case is dealt with –– if that happens, school districts will receive the funding each month while the case makes its way through the court system.
“The courts, in general, have agreed to do that. They know the importance of education,” Stevens said. “We’re on very secure ground to demand that the Governor spends money that we have allocated. Our attorneys agree with that.”
Stevens said that the Legislature has forward-funded education “dozens of times,” in order to allow school districts to financially plan for the year ahead. If the Legislature argues over education spending for too long, Stevens said, districts may be forced to fire teachers due to financial uncertainty. Even if districts eventually receive enough funding to hire those teachers back, Stevens said the whole process can drive teachers away from the state.
“Many teachers say ‘why should I stay in Alaska when I’m being threatened with losing my job?’” he said. “Early funding or forward-funding of education, you get out of that situation. Many states do a two-year budget. They fund the budget for one year and fund the budget for the following year. That’s something we would like to work toward.”
Stevens said it’s “likely” that the next few years could see more of these exact budget battles. Having served with the Governor back when Dunleavy was a Senator, Stevens knows that his political positions are deep-seated.
“He very definitely wants to cut the budget, he wants to see reductions. He very strongly believes in that. He doesn’t believe in an income tax. He does believe in a full permanent fund dividend,” Stevens said. “Those things seem to me to be impossible to keep as you go into the future. You know –– full dividend, no income tax, relying entirely on oil and interest from the permanent fund to run government: it’s not very realistic.
“We’ve been successful in avoiding an income tax,” Stevens continued. “I’m hoping we can continue to avoid it. But, to do that, we’re going to have to pump up the permanent fund and make sure it’s earning more money for us.”