Permanent Fund spending is this year’s snarl in the Alaska Legislature

One-third of the way to 90 days, analyzing the biggest pothole to a finished session

The Alaska State Capitol. (James Brooks | Juneau Empire File)

The Nenana Ice Classic bills itself as Alaska’s favorite guessing game. This year, that honor will go to the Alaska Permanent Fund Dividend.

 

The state of Alaska maintains a rolling counter of how many people have applied for their dividend to date. As of Saturday, that counter stood at 273,212, and even if all 60 of Alaska’s lawmakers were among those applicants, even if Gov. Bill Walker and Lieutenant Gov. Bill Walker were, not a single one can tell you with any certainty how much this year’s dividend will be.

That’s because not a single one can tell you with any certainty how Alaska’s $2.5 billion budget deficit will be resolved this year. In 2018, both issues are related, and it’s likely to take some time to come up with an answer.

Why?

After all, lawmakers have known about the deficit for years. They have watched the level of the Constitutional Budget Reserve — the Legislature’s principal available savings account — dwindle from more than $10 billion to (at the end of this fiscal year) $2.2 billion.

They have cut total state spending by a sixth: From more than $13.2 billion in 2014 to a little more than $10.7 billion in 2017. Lawmakers seem to agree that budget cuts — at least, without major reforms to core programs like education and health care — have reached their limit. The spending proposed for the next fiscal year has even increased, to a little less than $11 billion.

Almost everyone in the Legislature now agrees that the $62 billion Alaska Permanent Fund must play a role in resolving the deficit. Last week, however, one phrase came up again and again, from lawmaker after lawmaker: “The devil is in the details.”

Sen. Natasha Von Imhof, a Republican from Anchorage and a member of the Senate Finance Committee, has a good explanation.

“My message so far has been called the hamster wheel,” she said in a Friday interview from her top-floor office in the Capitol.

In a presentation she first shared with an Anchorage Rotary Club, she showed a set of arrows, each chasing the other in a circular pattern. In the center of the circle were the letters “POMV,” standing for “percent of market value,” the technical term for the plans to use the Permanent Fund to address the deficit.

“We need the POMV, but no one is willing to give up their vote unless they get their other items as well,” she said.

“Each side has their must-haves. The House and the governor wants an income tax, and the Senate wants a spending cap and spending reductions, and we go around and around and around. I’d say everyone is guilty of holding the POMV hostage,” she said.

The POMV is one of the few things that both sides agree is necessary. That makes it a tool for leverage, she explained.

Last year, the Senate passed Senate Bill 26, which includes a draw from the Permanent Fund but requires a cap on overall state spending. The House responded by passing another version of Senate Bill 26 with different details and a requirement for some kind of additional tax.

The bill has been stuck in a conference committee for almost a year now, with little progress.

Why not try isolating it from the other issues?

On Valentine’s Day, Senate Majority Leader Peter Micciche, R-Soldotna, took a first step in that direction by introducing a bill that calls for a 5 percent draw. There is no talk of a spending cap or additional tax in its language, and even the word “dividend” doesn’t appear.

Sen. David Wilson, R-Wasilla, pointed out that there are drawbacks to that approach, too. Wilson was one of the votes against SB 26 in the Senate last year and believes that any draw should be divided something close to 50/50: Half to the dividend, half to services.

If the dividend isn’t put down in a formula, he suggested there will be a temption for lawmakers to try to outbid one another by offering larger amounts and saying in effect, vote for me and I’ll give you more money.

“I don’t want to see one person deciding what that amount should be,” he said.

That’s the other half of the problem for the Legislature this year. Even if lawmakers put aside their disagreements and consider the POMV alone — something the House Majority and Senate Minority say they are opposed to — the arguments will switch to the technical elements of the proposal.

Should the draw be 5 percent or 4.5 percent? How much of the draw should be reserved for dividends? Should there be a cap if oil prices spike and the state suddenly earns billions from oil revenue? Should there be a statewide vote on the proposal? Should it require a constitutional amendment?

“There’s no lack of ideas on that end of the fiscal plan,” Speaker of the House Bryce Edgmon, D-Dillingham, said in a talk with reporters on Friday.

House Finance Committee Chairman Paul Seaton, R-Homer, pointed out something else during the same conversation. Even if some version of a POMV plan passes the Legislature this year, the state’s deficit doesn’t entirely disappear. Even the most aggressive plan only reduces it to $600 million or so.

“If you’re only talking about POMV, then all you’re saying is you need to start draining another savings account,” he said.

That means any debate about technical elements puts lawmakers back on Von Imhof’s hamster wheel. A debate about the size of the draw is in effect a debate about an income tax. A bigger draw means less need for a tax. Put more of the draw toward the dividend? The deficit increases and there’s more need for a tax.

Up on the fifth floor of the Capitol, Von Imhof has a spreadsheet that examines the state budget and the effects of a speculative POMV bill. Most POMV plans anticipate spending between $700 million and $800 million on a dividend, enough for about $1,200 per person — about half what it would be without the POMV.

She drew her finger down the spreadsheet and encouraged a comparison between that spending and the size of the remaining deficit. They were nearly the same.

She isn’t the only one who has noticed.

In a conversation with the Empire on Feb. 6, Seaton expressed a deep fear: If there are no new taxes to resolve the deficit after the POMV is implemented, the remaining money in the Constitutional Budget Reserve will be used to balance the budget.

That will last for three years. Then, when the money runs out, Alaskans will be asked to give up the last of their Permanent Fund Dividend in order to erase the deficit.

It’s a fear he brought up again last week: “Are people willing to take those kind of risks about getting rid of the entire Permanent Fund Dividend?”


• Contact reporter James Brooks at james.k.brooks@juneauempire.com or call 523-2258.


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