A proposed $14 billion state budget for next year with a $1.9 billion deficit, due largely to a “full” Permanent Fund Dividend of about $3,800, has been sent to the House floor for a vote. But don’t get too excited about a huge PFD or distressed about that deficit since neither stands much chance of becoming reality.

Members of the Democratic-led House majority have said a full PFD isn’t going to happen, and Senate leaders have said such a PFD — as well as a deficit of that size — isn’t going anywhere when they take up the budget after it is passed by the House.

Rep. Andy Josephson (D-Anchorage), co-chair of the House Finance Committee, proposed an amendment to lower the PFD to $1,000 that was rejected by a 7-4 vote, as many lawmakers are favoring a PFD of about $1,400 based on the calculations for last year’s dividend.

“Every dollar spent on the dividend is one less dollar available for other general fund needs and vice versa,” Josephson said in arguing for passage of his amendment. “This is particularly true in an environment where the state won’t raise revenue and leaves its citizens untaxed as to the functions of state government, the only state that does that directly.”

The House is expected to take up the budget beginning Monday, beginning with what will likely be a lengthy number of proposed amendments.

Lawmakers are already facing a grim situation with a deficit of about $680 million accumulated over two years to patch this session if they pass a status quo budget with a PFD of about $1,400 and an increase to the per-student education formula of $680. The House has passed an education bill with a $1,000 increase that was approved this week by the Senate Education Committee, which would add roughly another $100 million to the budget.

The size of the PFD and amount of an education funding increase are shaping up to be the primary budget battlelines this year, with many lawmakers saying increasing one will require shrinking the other. Some favoring the $1,000 education funding increase say the PFD should be lowered to $1,000 to offset the cost. However, other legislators say they want to minimize how much is tapped from reserve funds, which could mean a significantly smaller PFD.

The $1.9 billion deficit in the current House budget would drain most of the $2.8 billion Constitutional Budget Reserve at a time when lawmakers and legislative financial experts say the state is facing a perilous future due to lower oil prices and general economic uncertainty.

Josephson said the budget is essentially the spending plan submitted in December by Republican Mike Dunleavy that had a roughly $1.5 billion deficit with a full PFD and no education funding increase — but with numerous relatively small adjustments made during the committee process. The larger deficit is due to the increased education spending as well as revenue forecasts that are lower than predictions as of last December.

Josephson has also acknowledged keeping the full PFD in the draft budget was a mistake given that it won’t survive what the Legislature ultimately passes. Numerous people offering public testimony during the committee process were under a different impression, offering thanks to the lawmakers for including the first “full” PFD since 2016.

A March 31 memo by Sen. Lyman Hoffman (D-Bethel), co-chair of the Senate Finance Committee, tells subcommittees reviewing the budget “not to add any increments, start any new programs, nor accept any FY26 Governor’s (unrestricted general fund) increments. The only exception being increments related to Medicaid.”

“Furthermore, subcommittees should look closely at last year’s additions and bring forth recommendations for reductions,” he wrote. “Additionally, suggestions to streamline government operations will be strongly considered. Federal revenue uncertainty add urgency to be fiscally prudent and preserve our rainy-day funds. Looking forward, we should ensure our annual spending equals our expected revenue as we craft a budget that balance all the competing wants and needs of Alaskans.”

Another stumbling block in the budget sent to the House floor is a $79 million unallocated cut that effectively orders Dunleavy to determine where to make those reductions. However, the governor already has line-item veto authority for the budget and legislative attorneys have stated the vague House language is likely unconstitutional.

While both the House and Senate have bipartisan majorities where Democrats are the largest bloc, the Republican minority caucuses will have considerable leverage when a final budget is drafted — likely by a conference committee of House and Senate members — since a three-fourth vote of each chamber is needed to tap the Constitutional Budget Reserve. The prospect of vetoes by Dunleavy to certain items or the entire budget will also be a factor during negotiations.

• Contact Mark Sabbatini at mark.sabbatini@juneauempire.com or (907) 957-2306.