On June 28, Alaska's state legislators got a moment to catch their breath.

The Legislature has been at work on a budget nearly nonstop since Gov. Mike Dunleavy announced his budget proposal last December. The subsequent negotiations — and disagreements — over the state's finances have been among the most chaotic in recent memory.

Lawmakers ended a special session on June 28 after agreeing to a budget that would have paid less than half of the $1,100 Alaska Permanent Fund dividend that budget negotiators had proposed as sustainable. A subset of Republicans who, with Dunleavy, have been calling for bigger PFDs, voted against the other half of the dividend payment.

Two days later, Dunleavy vetoed the $525 PFD in the final budget along with $215 million in other vetoes. He called the reduced dividend a "joke," leaving it up to lawmakers to renegotiate a PFD when they meet on Aug. 2 for a third special session. (Dunleavy called for the August special session in May, before negotiators had settled on the proposed $1,100 dividend.)

In interviews with the Daily News this week, Sen. Bert Stedman, R-Sitka, Rep. Dan Ortiz, I-Ketchikan, and Rep. Jonathan Kreiss-Tomkins, D-Sitka, shared their thoughts and frustrations with the budgeting process so far and talked about what they're expecting will happen in next month's special session.

PFD quarrelling

The Southeast Alaska lawmakers agreed that the noisiest disagreements over the state budget this year were caused by a group of ideologically conservative state politicians, including the governor, trying to get leverage for bigger PFDs.

In order to pay out bigger dividends — whether through a constitutional amendment, as Dunleavy has proposed, or through year-to-year budget discussions — the state would have to overdraw from the permanent fund, hampering its growth and subsequently reducing the fund's ability to pay dividends to future generations of Alaskans.

The governor and legislators aligned with his PFD stance have so far not proposed specific ways to generate new revenues or cut spending by the roughly $500 million that would be needed to avoid stymying the permanent fund's growth.

Stedman, Ortiz and Kreiss-Tomkins all have made it a priority to maintain the health and long-term viability of the permanent fund.

The advocates of bigger PFDs were among the most vocal dissenters when a budget negotiation team that included Stedman put forth the full budget package that included the $1,100 PFD on June 13.

Under the terms of that team's budget agreement, the PFD was split into two chunks.

A $525 dividend, paid from the permanent fund, was included in the basic budget, which required a simple majority to approve.

Another $575 dividend would have been funded in part by the state Constitutional Budget Reserve. To approve that portion of the dividend — as well as funding for a wealth of other state programs, including power subsidies for remote interior communities, state scholarships and construction projects — at least three-quarters of legislators in each chamber would need to vote for the appropriation because it came from the CBR.

The two-part PFD plan prompted outcries from advocates of bigger PFDs, who said it forced them to support dividends that were too small.

On June 15, the House of Representatives approved the basic budget with a $525 dividend by the slimmest of margins, 21-18, but the vote on the other half of the PFD and other CBR appropriations failed 24-15, leaving state scholarship programs and the power subsidy program unfunded.

Those programs will remain unfunded unless the Legislature votes to fund them at a special session later this year.

Fifteen of the 18 House minority Republicans voted against both items. Republican Reps. Bart LeBon and Steve Thompson of Fairbanks and Mike Cronk of Tok voted for the CBR appropriation, but all three voted with the rest of their caucus against the basic budget itself. (Rep. Sara Rasmussen, an Anchorage Republican, is not a member of the majority or minority caucuses. She was excused absent from the vote for a scheduled medical appointment, according to a June 15 article in the Anchorage Daily News.)

In a phone interview on Tuesday, Stedman said those who voted against the CBR transfer were doing so out of spite after failing to attract support for their own PFD policies.

"It's unfortunate that those that supported a dividend of significant size that would take an overdraw of the permanent fund couldn't get the political support to do that, and then worked to short fund the dividend, and then the governor took it to zero," said Stedman. "The very people that wanted a larger dividend removed the $1,100 dividend. ... And I support the $1,100 dividend, not a $500 dividend or a zero dividend."

A self-imposed crisis

On June 17, two days after the Legislature approved the basic budget and one day before its special session ended, Dunleavy held a press conference to announce that the budget was "defective" because the Legislature didn't approve a technical clause setting the budget's effective date to July 1, the start of the 2022 fiscal year.

He said that the state government would shut down unless lawmakers approved the effective date clause and called them into another special session to resolve the issue.

Earlier that week, when the House voted on the two-part budget, representatives also held a vote to approve the effective date clause. But the same group of 15 Republican representatives who voted against the second dividend portion, plus Rep. Cronk, also blocked the approval of the effective date.

Many lawmakers, including House Speaker Louise Stutes, R-Kodiak, said Dunleavy's interpretation of the effective date issue defied years of precedent and unnecessarily imperiled state jobs.

Stedman on Tuesday said Dunleavy's interpretation of the effective date was wrong, and that the governor chose to threaten a government shutdown for his own ends.

"His view of the effective date is incorrect," Stedman said. "That was just more political leverage."

Stedman denounced that approach.

"I think trying to use that as leverage to overdraw the permanent fund is a little over the top. And you don't leverage the operating budget against policy. In other words, you don't threaten to shut down the government because you're short of votes on your policy," he said. "The Legislature is the policy branch of government, not the executive branch."

Kreiss-Tomkins also criticized Dunleavy's willingness to artificially threaten a shutdown, calling it "unnecessary brinksmanship."

"It's just needlessly destructive to hold hostage those programs to try to extract leverage for a certain-sized PFD," Kreiss-Tomkins said. "When I was in the minority, we never dreamed of doing it. It never even crossed our mind. So this is like, for the first time in 60 years of Alaska history, ... you're seeing from very ideologically conservative legislators extraordinarily hard ball tactics."

It took only five days for legislators to approve an effective date in a second special session. Its passage hinged on a deal between the House majority and minority to create a "bicameral bipartisan working group" to discuss the state's long-term fiscal plans.

Vetoes

With the effective date approved, Dunleavy last Wednesday signed the budget into law, though he waited a day to hold a press conference to announce his vetoes.

Along with the $525 PFD, he vetoed portions of the state funding for legal services and the Alaska Marine Highway System and all state funding for tourism marketing and public radio and television, along with many others cuts and reductions.

Kreiss-Tomkins said the PFD veto was "a weird, bizarre maneuver" but conceded that, if the goal is larger permanent fund payments, "it's I guess something that makes sense from their view."

Dunleavy also vetoed state compensation for legislators' daily expenses, for which Stedman criticized him.

"Clearly, that was a ... politically motivated veto," said Stedman. "In the Legislature, although we write the budget, we normally don't get involved in the governor's budget, and he doesn't get involved in the Legislature's budget. So this is a very problematic veto, and very concerning."

Not only that, he said, it would discourage legislators from convening in August for PFD discussions.

"I think with the governor's veto of legislative per diem and salaries, it's going to be hard to get legislators to even go to Juneau to deal with (the PFD)," he said. "If you don't get your way with the Legislature because you don't have the political support, and you try to veto their budget, that's just in spite. That doesn't build bridges and doesn't help you get to a positive conclusion."

Kreiss-Tomkins and Stedman agreed that the governor would do well to garner support for his policies by working with legislators personally, rather than by the press releases and press conferences that have been his preferred media since he took office.

"I mean, the governor was on a hunting trip during the last week of regular session," Kreiss-Tomkins said. "So, I think at the very least he needs to be in town and in the building — engaging — in order for good things to happen."

The veto that wasn't

Though Dunleavy last week announced his intention to veto a $4 billion transfer from the Permanent Fund's Earnings Reserve Account to its principal account, the final budget he signed last Thursday did not include a veto for that transfer.

The governor argued it was a typo, but legislative clerks did not put the veto back in, saying it "went beyond a minor mistake, according to a July 1 Anchorage Daily News article. House majority leaders said they intended to let the signed budget stand without the veto.

By Tuesday, the governor's office confirmed to the Associated Press that he will allow the transfer to proceed.

Ortiz and Stedman both said the transfer would pay off for Alaskans in the long run.

"What (the transfer) does (is) it ensures that the $4 billion will not be spent without a vote of the people," Stedman said. "It's added to the principal, ... constitutionally protected side of the permanent fund itself, and it'll pay huge dividends going forward for current and future generations of Alaska in perpetuity."

Ortiz agreed: "We're glad that that money is now being put into the corpus (the principal account) because that makes it untouchable and unspendable by the Legislature. And therefore we can rely on $4 billion to be there, to provide further returns on the investments, which we of course can spend."

Bipartisan working group

On Wednesday, the eight lawmakers comprising the "bipartisan bicameral working group" held their first meeting to try agreeing to a long-term fiscal plan for the state.

Kreiss-Tomkins is a member of the group. He said he's trying to keep his expectations grounded.

"I think we should have as low (as) possible expectations, and work very, very diligently to exceed them, which is certainly my mindset. But I think there's reason for promise. I'm certainly approaching it in good faith and an open mind," said Kreiss-Tomkins. "We'll see what happens."

The group is considering pushing back the start date of the Aug. 2 special session to allow for more time to discuss and negotiate budget plans, according to a Wednesday report by the Juneau Empire.

Special session expectations

The Southeast Alaska legislators differed in their assessment of how the next special session would play out — and whether the Legislature will manage to agree on a PFD amount.

Stedman said the state programs left unfunded along with the second portion of the PFD will probably be the Legislature's first priority.

"I think one of the first things we need to address is the reverse sweep," Stedman said, referring to the accounting process that empties certain state accounts into the Constitutional Budget Reserve at the end of each fiscal year, including those tied to rural energy subsidies and scholarships. "Those legislators that wanted a large dividend were the ones that defunded the current dividend, and the governor eliminated the rest of it. And they also created about $130 million hole in the operating budget by not supporting the reconstitution of the account balances in about 30-plus accounts. And they, in that, eliminated (the) Power Cost Equalization (plan's) funding for 85,000 of the poorest residents, eliminated scholarships and the WWAMI program for medical students and municipal assistance. So ... that will be one of the first things discussed."

He added: "In my estimation, if that can't be resolved, there will be an adjournment of the special session," Stedman said — with or without a PFD.

Still, he hopes that a PFD payment will pan out in the special session.

"We've got the funding available to do it, and we should take care of that," he said.

Ortiz, on the other hand, was unequivocal that the Legislature would agree to a PFD payment.

"Yes, definitely. There's no question that that'll happen," he said. He noted that the House and Senate majorities both voted to approve the full $1,100 PFD payment last month.

He said that the Legislature has several avenues by which it could try to agree to a PFD amount while sidestepping the steep three-fourths majority required to directly override a veto.

For instance, he said, the body might introduce a separate appropriation bill for the PFD, as it did in 2019, he said. That method would require only a simple majority to pass, and could potentially be used to reinstate other vetoes, too.

"I'm not sure that it'll be the option we choose, but that's an option," said Ortiz.

"It's hard to say," Kreiss-Tomkins said. "Things are incredibly dysfunctional by any objective measure. But I'd like to think there'll be a PFD. Certainly I would like to see a PFD this year, and it'd be a real shame if because of brinksmanship politics there isn't one."