Alaska House votes to cut proposed dividend, but huge deficit remains unresolved

Assuming Gov. Mike Dunleavy’s proposed capital budget, the change cuts the proposed budget deficit from $1.9 billion to less than $400 million for the fiscal year that begins in July.

Lawmakers also face an almost $200 million deficit in the budget that ends June 30.

The House is set to resume debating the state’s fiscal year 2026 operating budget on Monday.

Members of the House’s Republican minority caucus said they were caught off guard by Friday’s vote.

Several Republicans said they had been told by the leaders of the House’s Democratic-independent-Republican majority caucus that there would be no budget action on Friday, and three minority Republican lawmakers were absent as a result.

Amendments pass the House if approved by a majority of lawmakers present on the floor, and the amendment to reduce the proposed dividend passed 20-17, with Rep. Neal Foster, D-Nome, joining 16 minority Republicans in opposition.

“I am ashamed at the process, and I am ashamed at what is happening today,” said House Minority Leader Mia Costello, R-Anchorage.

“What is happening today on amendment No. 1 is, in my mind, now considered the poster child of disingenuous relations,” she said.

Rep. Frank Tomaszewski, R-Fairbanks, attempted to adjourn the House until Monday in order to allow time for the missing Republicans to return, but that proposal was voted down.

Friday’s vote capped a vexing week for members of the House majority, who sought to reduce the Permanent Fund dividend but lacked the votes to do so because of the opposition of Foster and Rep. Nellie Jimmie, D-Toksook Bay.

In previous years, legislators have used the Permanent Fund dividend as a budget-balancing tool, reducing the amount in years with low revenue and raising it in years with more revenue, as after the Russian invasion of Ukraine.

Normally, the House Finance Committee starts its budget debates with a low proposed dividend, and lawmakers negotiate to raise that figure.

This year, Rep. Andy Josephson, D-Anchorage and the co-chair of the finance committee, started with a larger figure, first proposed by Gov. Mike Dunleavy in December.

Josephson, speaking to the Juneau Empire, called that decision a mistake. Cutting the Permanent Fund dividend functions like a regressive tax — it disproportionately affects low-income Alaskans, and two of the finance committee’s members are rural Democrats who represent the two lowest-income House districts in the state.

In committee, Foster said he could not vote to reduce the dividend. He and Jimmie joined five Republican members of the committee in voting against a budget-balancing amendment proposed by Josephson that would have set the dividend at $1,000.

Late Thursday, in an unusual hearing, the committee again tried and again failed to cut the dividend before sending the budget to the floor. The debate was cut short as several members of the committee rushed away to present a legislative citation to the Alaska Folk Fest, occurring a few blocks from the Capitol.

On Friday, Jimmie gave an impassioned speech, saying that the large dividend proposed by Dunleavy and the finance committee was never realistic and is a heartbreaking mirage for her constituents, who rely on the dividend for food and basic essentials.

“I’m going to tell you the truth,” she said on the House floor, addressing constituents watching the debate on TV. “From the very first day that we walked into this building, there was never enough money for a full PFD, not without cutting the things that keep us alive: schools, public safety, health care.”

The dividend means dignity, means keeping people out of poverty, she said.

“It hurts me to see that dividend, something that means heating oil in the winters, diapers for our babies, food on the table, being dangled like a bait, like a prize on a string,” she said.

Jimmie said she would continue to advocate for a large dividend but “could not lie to my people to get applause,” and voted in favor of the cut.

No lawmaker has proposed tax increases large enough to pay for the larger Permanent Fund dividend, and legislators say they are unwilling to break a soft cap on spending from the Alaska Permanent Fund, which leaves the Constitutional Budget Reserve, the state’s principal savings account, as the only means to cover the deficit.

That would require votes from 30 of the 40 members of the House and 15 of the 20 members of the Senate, plus the assent of the governor.

The CBR held $2.83 billion as of Feb. 28 and the draft budget with the larger dividend would have consumed more than two-thirds of it.

“So this is where we are, ladies and gentlemen,” Josephson said on Friday. “This is where we are when we’re the only state that is striving mightily to pay money to every citizen that is eligible, and tax no one in the state. Why are we surprised?”