Anchorage Superior Court Judge William Morse on Thursday upheld Gov. Bill Walker's power to cut this year's Alaska Permanent Fund dividend in half by veto, rejecting a closely watched legal challenge from a state senator.

Morse, in a ruling delivered in the courtroom immediately after arguments from both sides, dismissed Anchorage Democratic Sen. Bill Wielechowski's technical interpretation of state law and the Constitution and instead sided with state lawyers who stressed the governor had broad constitutional veto powers.

"The framers really wanted the governor to have a check on spending during crunch time. And we're in crunch time," Morse told Wielechowski at one point, referring to the state's multibillion dollar budget deficit.

Wielechowski, an attorney who filed his case with Clem Tillion and Rick Halford, two longtime Republican Alaska politicians, said shortly after the ruling he would appeal to the Alaska Supreme Court. The Supreme Court tends to give great deference to the fact-finding of lower court judges and juries, but less to the rulings like Morse's that represent interpretations of laws and the Constitution.

Wielechowski sued the state-run Permanent Fund corporation in September, after Walker, citing legislative inaction amid the deficit of more than $3 billion, vetoed the transfer of more than $600 million into the dividend program. The veto cut dividends in half, leaving the payments at just over $1,000 but saving the state more than $600 million.

This year's dividends were paid in October, but Wielechowski is asking for a supplemental round of checks to be issued if he wins.

The lawsuit has drawn passionate support in online forums, and a half-dozen people rallied outside the downtown Anchorage courthouse in the early morning chill before Thursday's hearing.

"It's a property rights issue," said Kimberly Slone, 47, a nurse from Eagle River who held a sign identifying her as one of the "Permanent Fund defenders."

Wielechowski's position — articulated in a pair of legal briefs and reiterated in Thursday's arguments — is that Walker didn't have legal authority to issue his line-item veto, which is normally used to wipe out a particular expenditure in the budget passed by the Legislature.

Wielechowski's argument relies on the state constitutional amendment that originally set up the Permanent Fund, paired with a state law setting out annual transfers of money into the account from which dividends are paid — a combination that would create, effectively, a nonstandard budget process exempt from Walker's veto power. Normally an appropriated expenditure exists only until the next legislative session.

"It's an automatic transfer," Wielechowski said.

Wielechowski's argument faced swift and persistent skepticism from Morse, who sparred with the senator for more than 45 minutes.

Morse asked why lawmakers had accounted for the dividend transfer in its standard budgeting process for decades. He asked whether legislators could dedicate Permanent Fund income to men and not women — and when Wielechowski responded such an action would be unconstitutional, Morse asked why it would be any different from an action that disregarded another part of the Constitution — the governor's veto power.

And the judge pointed out Wielechowski's argument relies on the constitutional amendment establishing the Permanent Fund even though the amendment never explicitly stated it would eliminate a portion of Walker's veto power.

"You're telling me that what they secretly were trying to do was eliminate the governor's veto authority, but they never mentioned that?" Morse asked Wielechowski. "I should assume that you are speaking now and there are words you are not mentioning, but in reality that's what you're talking about?"

The state's position, articulated by Chief Assistant Attorney General Margaret Paton-Walsh, was more straightforward.

She argued even if the constitutional amendment worked with the dividend transfer law to dedicate money to the dividend account, the cash could come out of that account only by a separate legislative appropriation still subject to Walker's veto.

The key issue, she said, is whether the amendment permits lawmakers "to do an end run around the basic constitutional rules for spending — and I don't think there's any basis for that."

As an indication of the technical nature of the case, Morse interjected to say he agreed, citing the differences between annual legislative appropriations and dedicated funds, which can exist beyond the life of a single year's budget. Wielechowski's lawsuit "isn't really a dedication case," he said. "It's an appropriation case."

In his ruling, Morse acknowledged he would not be the "final arbiter" in the case — a job that will instead go to the Alaska Supreme Court.

Wielechowski, in an interview inside the courtroom after the session ended, said he planned to appeal and expects the case to be resolved "in the next few months" — though likely not before the start of the legislative session in January.

Walker is expected to again offer a bill to restructure the Permanent Fund and use some of its investment revenue to pay for government services. Earlier this year, his fund legislation passed the state Senate in a 14-5 vote, but fell one vote short of passage in the House Finance Committee.

"Using part of the Permanent Fund earnings is the cornerstone of the plan to fix Alaska's fiscal crisis," Walker said in a prepared statement Thursday. "I am pleased with the timeliness of the Superior Court ruling, as it allows us to continue focusing on resolving our budget deficit and creating a sustainable future for all Alaskans."