PFD on the chopping block

Senate approves sweeping changes to Alaska Permanent Fund

Lawmaker after lawmaker said the Senate does not relish the idea of touching what has long been a political third rail — the Permanent Fund — but they see no other alternative.

 

The Alaska Senate has approved a sweeping reformation of the Alaska Permanent Fund that generates billions to fix the state’s budget deficit but halves the Permanent Fund Dividend.

“Alaska has a problem, and that problem is that our revenue doesn’t meet expenses and we’ve been drawing from our savings account for the past five years,” said Sen. Anna MacKinnon, R-Eagle River and co-chairwoman of the Senate Finance Committee.

“We don’t have a lot of choices left,” MacKinnon said.

Opposition to the bill came from members of the Senate’s Democratic minority and from the Republican senators who come from the Matanuska-Susitna Borough.

Sen. Bill Wielechowski, D-Anchorage, who initiated a lawsuit against the governor back in 2016, offered an impassioned and lengthy speech about how SB 26 is a de facto tax of $1,000 on every Alaskan.

Because the same amount is taken from everyone, “this plan taxes the secretary at a much, much higher rate than the millionaire CEO,” Wielechowski said.

Wielechowski and Sen. Mike Dunleavy, R-Wasilla, proposed amending the bill on the floor, but no amendments passed.

Judging by the amount and volume of public testimony against the proposal, the idea of spending a portion of the Permanent Fund remains unpopular among Alaskans.

“The public has told us they want us to keep our hands off the Permanent Fund,” Wielechowski said.

“I think the people are not going to be real happy with this plan,” he added during a press conference after the bill’s passage.

In a special advisory vote held in 1999, the last time the Legislature seriously considered using the earnings of the Permanent Fund, 83.25 percent of voters said no. While the vote wasn’t binding, the Legislature retreated from the idea.

Business groups, meanwhile, have testified in favor of the proposal. Among those offering letters of support were the Resource Development Council, Associated General Contractors and Northrim Bank, which said in a letter, “Passage of this legislation will go farther than any other action to prove that we have the means to balance our budget and regain the confidence of the market.”

Details of the proposal

Senate Bill 26, which passed in a 12-8 vote, advances to the House for consideration. It will become law only if the House and Gov. Bill Walker also approve.

The bill does not touch the constitutionally protected principal of the Permanent Fund. Instead, it spends some of the money the Permanent Fund earns when that principal is invested, money that is currently deposited into the fund’s $10.6 billion earnings reserve.

If approved by the House and signed into law by the governor, SB 26 would take 5.25 percent of “the average year-end market value” of the Permanent Fund and its earnings reserve combined.

That average is calculated using five of the previous six years, a technique designed to moderate big swings in the investment markets.

In fiscal year 2018, that formula would generate $2.5 billion per year for dividends and government services.

Seventy-five percent of that figure would be applied to Alaska’s $2.7 billion budget deficit, dropping it to $819 million, according to calculations by the nonpartisan Legislative Finance Division. The remaining 25 percent would pay dividends.

The bill requires the Permanent Fund Dividend to be $1,000 in 2017, 2018 and 2019.

Speaking on the Senate floor, Sen. Gary Stevens, R-Kodiak, said that amount is close to the long-term average dividend amount.

Without the bill — or any vetoes by the governor — the dividend is expected to be more than $2,000 per person.

After 2019, the value of the dividend is expected to gradually rise above $1,000, but it would fall if the Permanent Fund’s investments do worse than expected.

That system would stay in place for three years, then the draw would decline to 5 percent of the average value. The Permanent Fund is expected to earn an average 7 percent return on its investment, and the reduction in the draw is designed to provide a safety measure and help the Senate create one of its longstanding wishes — a smaller government.

Spending cap included

In addition to the spending measures, SB 26 includes a $4.1 billion spending cap of dubious effectiveness. It’s dubious because one Legislature cannot bind a future Legislature through statute. It’s the same reason Legislatures have repeatedly violated the law calling for a 90-day Legislative session: The law isn’t legally binding.

Only a constitutional limit can bind the Legislature, and lawmakers have proposed an amendment that would strengthen the spending cap that already exists in the Alaska Constitution. That measure would have to be approved by voters to become effective.

Dunleavy, speaking in opposition to SB 26, said he feels the Senate is “putting the cart before the horse” by not requiring greater budget cuts and greater surety before its passage.

“I think immediately we have to work on the constitutionalization of that fund,” he said.

In addition to the spending cap, SB 26 includes a provision to automatically reduce the Permanent Fund draw if oil revenue tops $1.2 billion per year. For every dollar of oil revenue above that figure, a dollar will be removed from the Permanent Fund draw.

According to figures provided by the Alaska Department of Revenue, that limit will be reached in fiscal year 2019, when oil revenue is expected to reach $1.34 billion. By fiscal year 2026, oil revenue is expected to reach $1.56 billion, a figure that would reduce the Permanent Fund draw by some $360 million.

House action ahead

In the House, lawmakers are considering a similar but wider-reaching bill. House Bill 115, now in the House Finance Committee, calls for a 4.75 percent draw from the Permanent Fund, lower than the Senate’s proposal. In a significant difference from the Senate plan, HB 115 also includes an income tax, something the Senate has been reluctant to consider.

The Legislature has been in this position before. The Senate last year approved a Permanent Fund bill that died in the House during the Legislature’s extended summer special sessions. The Senate Bill 128 passed the Senate in a 14-5 vote on June 6.

“I’m still concerned the same thing will happen again this year,” said Sen. Dennis Egan, D-Juneau. Egan voted for SB 26 but changed his vote on reconsideration and will go into the books as a “no”.

HB 115 and other measures proposed by the House are intended to completely eradicate the state’s deficit within a few years. The Senate, which is expected to propose deeper budget cuts than the House, does not have a plan to eliminate the entire deficit.

That worries some lawmakers.

“If this bill passes, we in the Senate are going to wash our hands of this budget crisis issue and claim victory that we’ve fixed the problem,” said Sen. Donny Olson, D-Nome.

Vote tally

Yes: Bishop, Coghill, Costello, Giessel, Hoffman, Kelly, MacKinnon, Meyer, Micciche, Stedmans, Stevens, Von Imhof (12)

No: Begich, Dunleavy, Egan*, Gardner, Hughes, Olson, Wielechowski, Wilson (8)

*Sen. Dennis Egan, D-Juneau, voted for the proposal on the first vote, but upon reconsideration changed his vote to “no”.

The governor joined the crowd in the Senate gallery as the vote neared. “I was very pleased with the outcome,” he said after the fact.


• Contact reporter James Brooks at james.k.brooks@juneauempire.com or call 419-7732.


Topics

Gerald Newton 9 months ago
Alaska has about 355,000 workers. This few people cannot support a $4 billion budget. Giving every man woman child a $2,000 PFD check totaling $760 million each year is insanity. A $1,000 PFD check is insanity. Alaskans pay less state taxes than any other State. The oil wealth is no longer there so what can this State do? The big budget items are not state employees or agencies, but the education budget at $1.3 billion and and Medicaid at about $1.1 billion. The third largest item is the University of Alaska. With a budget of $300 million the UA budget comes to $845 per working Alaskan. Taking $1,000 of the PFD from each working Alaskan is one way to pay for the University of Alaska and leaves very little for the education and Medicaid budgets. The bottom line is either major changes have to be made or revenues have to be created. For instance how about closing the UAF and all UA campuses except the Anchorage one? This is the kind of changes that might have to be made.

Again everyone needs to read and digest the Gunnar Paulsen Knapp report at 
http://www.iser.uaa.alaska.edu/Publications/presentations/2016_02_02-AnIntroductionAKFiscaFactsChoices.pdf
Daniel Donkel 9 months ago

The negligent mindset of the state's leaders never investigates the abusive treatment towards smaller competitors causing wastefulness of state's natural resources and finances.
It is clear to me the Majors have a monopoly, and too many elected leaders are in bed with each other and the people and oil workers of Alaska are ultimately the ones paying the price.
This is like wasteful legislators who have turned a convenient blind eye on the state's oil & gas agencies that protect the major's monopoly at the expense of the economy and the destruction of smaller competitors. This is done through the abuse of their discretion and the fact that the fox is guarding the henhouse. Unfortunately, it is the people's henhouse.
SB 26 is as bad as HB 111 but this one takes more money from 720,000 Alaskans as the DNR turns down 60K on a lease extension from Donkel at the Stinson oil discovery, the DNR DOG did this when no one bid in the 2015 Beaufort sale. Why turn down 60K for no reason? CBC?

Daniel Donkel 9 months ago
Not one Alaskan has drilled for oil, found it and sold it for a profit and now they want to make it harder for Alaska oil and gas workers, what are they thinking? They are killing the goose that lays the golden eggs, this is crazy!

Alaska has so much oil but they make it impossible to do oil business in Alaska with all the red tape and that means Alaskans better vote to distribute all the Permanent Fund money so they can get around $80,000 per  Alaskan and move out of Alaska before the take it all. The DNR is too harsh!

No one bid in the Cook Inlet sale last year and no one bid for leases in the Beaufort Sea in 2015 and only one producer bought leases in the last North Slope sale and that was ConocoPhillips, the other two majors did not bid on anything!

Alaska has $60 billion and has lots of oil and the oil prices increased almost 100% since last year! 

This Panic is killing Alaska. The state will not stop the big oil monopoly, so Alaskans and competitors can't profit and survive!
Sean Mccoy 9 months ago

what you fail to understand is that this dividend is the peoples money--OUR money, not the legislatures, and not the governments.  this money goes to offset the cost of living for most Alaskans.  also, your assessment of big-budget items is way off base and fatally skewed.  the federal government pays a large portion of the education and Medicaid expenses.  I guess you also fail to realize the economic impact that the release of the dividend into Alaskans' bank accounts has on the state as a whole.  when the governor stole half of our dividends, he caused more financial damage to the state than any other cause or reason.  he needs to be brought to answer for singlehandedly killing the economy of the state, and sending us into a repressive state by his stupid ignorance of how the dividend affects the local economy.  as for the ua system, it needs to be made economically viable instead of being an anchor around our collective necks.  if tuitions cannot meet the financial requirements of the system, then maybe the system is too bloated, or tuitions are too low, or a combination of the two.  whichever the case, and im assuming the former for good reason, it needs to change.  we should start with out of touch salaries of administrators.  my proposal would revisit the salary schedule of all positions in the ua system, and adjusted to reflect the financial position of the state economy.  if the employees of the system cannot agree to this, then perhaps a little housecleaning is needed, since they cannot seem to understand the need for tightening of the collective belts of all Alaskans.  but, and this is critical, the dividend is not to be touched due to the massive effect it has on the economy and the lives of those people whose money it is.  after all, it is owned by the people of Alaska, provided for the people of Alaska, and mandated by the people of Alaska through our setting up of the whole dividend program.  no government action has ever done so much to have as much positive input into the state as the dividend program.  keep your grubby mitts off, politicians, or you will find your political lives cut short.

 

sean McCoy, anchorage

 

Daniel Donkel 9 months ago

The DNR has just refused to take $60,000 from Sam Cade and Dan Donkel for oil & gas lease rentals, stating nothing is better then $60,000, sound right?

Why not take $60.000 and extend Stinson leases under the new 2014 law when the legislature gives up it's own money!

Now Donkel /Cade will be forced to sue Andy Mack of the DNR to make the DNR take this $60,000 which will cost taxpayers another $60,000 to pay for attorneys!

Why not call Andy Mack ask him what is up with this type of unreasonable management of Alaska's oil & gas leases at the DNR DOG? Is this wrong with the current financial crisis in Alaska!

Alaskans will you call the DNR and talk with Andy Mack about this refused $60,000 from a former Director of the DNR DOG?

Former Director Corie Fiege refused to take the rentals and grant a 3 year extension at Stinson oil & gas field leaving the state with no money and no lease activity moving forward but guaranteeing a lawsuit for abuse of discretion and breach of contract.

Gerald Newton 9 months ago
You need to read the Gunnar Paulsen Knapp report.
Daniel Donkel 9 months ago
Wake up Alaskans to the idea that big oil may be in bed with some bad government people who shut you out of the oil and gas wealth in Alaska to personally enrich themselves! 

Alaskans please look at what Texas and other oil states do, they don't let a few outlaws in these state oil and gas agencies and a few bad state legislature work with big oil monopolies to stop you from getting the land to find and sell oil at a profit! 

Alaskans should also be able to share into the state's oil and gas wealth by drilling and selling oil at a profit. 

Do you think it is every Alaskans duty to change the direction of these bad policies so the people can drill and sell oil at a profit to enrich Alaskans instead of these "few" crooked bureaucrats and a "very" few paid off leaders? 

Texas has TIPRO that represents the people, maybe start a Alaska chapter, it will help the 720,000 PFD oil and gas royalty owners and producers of Alaska to fix this problem fast!

Stop the CBC in Alaska! Fix this now!

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