Alaska House contemplates a multibillion-dollar gamble on oil prices to pay $5,500 per Alaskan

Speaker of the House Louise Stutes, a skeptic, canceled a vote on Thursday.

By: - May 12, 2022 7:45 pm

The Alaska House of Representatives is seen in session on Wednesday, May 11, 2022, at the Alaska State Capitol in Juneau, Alaska. (Photo by James Brooks/Alaska Beacon)

Leading members of the Alaska House of Representatives said on Thursday that the House appears ready to approve a Senate-passed budget that would pay $5,500 this year to eligible Alaskans. They cautioned that the situation remains in flux and could change quickly.

On Wednesday and Thursday, Speaker of the House Louise Stutes canceled scheduled votes to adopt the Senate plan, which Stutes opposes. Supporters have taken it as a sign that there are enough votes to concur with the Senate’s idea.

“I feel like there’s no 100% surety. But I feel that because we’ve seen some delays in going to the floor, I feel pretty confident that there are the votes there,” said House Minority Leader Cathy Tilton, R-Wasilla.

Uncertainty over payments’ fate

Other legislators aren’t as confident and say the situation is in flux, sometimes hour by hour, based on the results of closed-door conversations among members of the House, Senate and Gov. Mike Dunleavy, who could veto part or all of the budget.

“I think there’s a possibility of concurrence. But I think there’s also a possibility of not concurring,” said Rep. Sara Rasmussen, R-Anchorage. “It’s totally fluid. I feel like it’s really up in the air.”

Lawmakers said emails on the topic are flooding their inboxes, and major organizations are also beginning to lobby the Legislature. The Alaska AFL-CIO, the state’s leading organized labor organization, on Wednesday urged House lawmakers to reject the Senate plan and continue negotiations.

The Alaska Chamber of Commerce took a similar position Thursday, saying in a letter that the Senate’s proposal — which would be the largest budget in state history by one measure — could lead to an abrupt rise in oil taxes, something it opposes.

This year is an election year, and many lawmakers pledged during their last campaign to pursue the largest possible Permanent Fund dividend.

Under the Senate plan, eligible Alaskans will receive a $4,200 Permanent Fund dividend and a $1,300 special relief check intended to compensate them for the high cost of energy.

The programs will cost a combined $3.6 billion.

Alaska is expecting a financial windfall from high oil prices caused by the Russian invasion of Ukraine. In spring 2021, the Alaska Department of Revenue predicted that oil would average $71 per barrel in the budget year that runs from July this year to June 2023. That would generate about $2 billion in oil revenue.

This spring, after prices spiked, the department revised its forecast: It now expects oil to average $101 per barrel, generating $4.4 billion.

Senate would draw from savings

The windfall isn’t enough to fully fund the big payout. The Senate budget — once spending on construction projects and services is added to money spent on the payout — has a deficit of about $970 million.

The Senate’s plan is to pay for that using savings.

“It is a gamble,” said Senate Minority Tom Begich, D-Anchorage, who voted against the budget in the Senate.

GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX

If average oil prices are lower than expected in FY23, the state could run out of savings. 

At $93 per barrel, the Statutory Budget Reserve — the savings account that would be used first — would run out of money. At $75 per barrel, the Constitutional Budget Reserve — which requires a supermajority vote to use — would run out of money.

If prices average less than $75 per barrel, the state likely would have no alternative except overspending from the Alaska Permanent Fund. That would have doubly negative consequences, since spending more from the Permanent Fund means less investment earnings in future years, increasing the need for budget cuts or tax increases.

Rep. Zack Fields, D-Anchorage, called that possibility a “terrible outcome that screws over many future generations.” He opposes the plan.

But other lawmakers feel the rewards outweigh the risks.

“It is going to be huge,” said Rep. Laddie Shaw, R-Anchorage. 

“It will feel like they’re coming out of a recession. People will be filling up their fuel tanks. They’ll be repairing things that need to be repaired, putting money into the bank to further their education, a ton of stuff,” he said.

Tilton and Rasmussen each said they feel oil prices will remain high.

“I feel like it’s pretty secure, the price of oil,” Tilton said.

Asked whether it creates a situation where Alaskans might cheer for a long, bloody war in Ukraine, Shaw — a Vietnam War veteran — said, “that’s the Catch-22.”

But Begich and Tilton, each discussing a meeting between legislative leaders and Dunleavy, said both the governor and leading lawmakers believe the budget — which would be the largest in state history — is too large.

Potential veto for energy checks

Multiple lawmakers said the governor has discussed the possibility of vetoing the energy payment as a way to partially assuage those concerns. 

Doing so would still mean a $4,200 payment for Alaskans but would significantly reduce the drain on the state’s savings accounts. 

Other legislators suggested the governor is contemplating ways to veto enough from the budget to eliminate the savings draw entirely. If that were to happen, it would be the first time since 2013 that the state has balanced its budget without spending from savings.

A spokesman for the governor’s office confirmed that the governor has been holding discussions with lawmakers but did not answer questions asking the governor’s opinion on the $5,500 payout and whether the governor would veto the energy payment. 

The House is scheduled to meet Friday, but even if that meeting is canceled, constitutional guidelines would require a meeting by the end of the day Sunday.

The last day of the Legislature’s regular session is Wednesday.

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

James Brooks
James Brooks

James Brooks is a longtime Alaska reporter, having previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. A graduate of Virginia Tech, he is married to Caitlyn Ellis, owns a house in Juneau and has a small sled dog named Barley. He can be contacted at [email protected]

MORE FROM AUTHOR