Measure proposes tapping fund for gas line

House speaker denies 'raid' on earnings in state permanent fund

Posted: Tuesday, January 26, 2010

Two top state Republican leaders, including House Speaker Mike Chenault, are suggesting that Alaska Permanent Fund earnings might be used to subsidize an in-state natural gas pipeline

A bill introduced Monday by Chenault, R-Nikiski, and Rep. Jay Ramras, R-Fairbanks, would ask voters if they'd support using the Fund's earnings in such a way.

The question proposed to voters would be: "After paying annual dividends and inflation-proofing the fund, should permanent fund investment earnings be appropriated to help pay the costs of constructing an in-state natural gas pipeline?"

The question would be asked at a statewide general or primary election, which could be as soon as August.

Earnings of the permanent fund are currently used to pay dividends and to protect the fund's underlying principal from inflation.

"I don't want Alaskans to believe that this advisory vote is a raid on the earnings of the permanent fund," Chenault said.

It's not clear what impact Chenault's proposal might have on the size or ability to pay future dividends.

Dividends are paid out of the fund's investment profits, but those profits are only tallied when they are "realized," such as when a stock or other investment is sold.

Those profits are called "earnings reserve," and under state law only half of the earnings reserve can be paid out in dividends in any year.

There is currently not enough money in the earnings reserve to pay this year's full dividend, unless markets further rebound between now and the end of the fiscal year on June 30.

Taking additional money out of the earnings reserve may make it more difficult to reach the payout threshold in future years.

Chenault's proposal included no amounts to be taken from the earnings reserve or specifics on what it would be used for.

Rep. Harry Crawford, D-Anchorage, who has sponsored a bill to write the dividend into the state's constitution, said Chenault's bill doesn't conflict with his proposal and he supported the intent.

"If the people say 'okay,' I can't think of many better uses for it," he said.

Crawford said his bill would allocate only 50 percent of the earnings for dividends, and would leave the remainder for other uses.

Crawford said he is also concerned about the definition of "in-state" gas, and said his priority is to get the state a large capacity, interstate pipeline to ensure the gas it brings is affordable. Due to the economies of scale in gas transportation, a large diameter pipeline would produce cheaper gas than a smaller one.

"I want to see the big line, I want to see something that makes economic sense," he said.

Chenault said that focusing on one or two big energy projects for the state, such as in-state natural gas line, would have a better chance of success than a shotgun approach with many small projects that might fail.

"It's time for the state to start making decisions and this question will help the Legislature and administration move toward viable projects," he said.

A subsidy for in-state gas might have more trouble in the Senate than in the House, where several top leaders are from Southcentral or Railbelt communities that stand to benefit.

In the Senate, by contrast, influential members such as President Gary Stevens, R-Kodiak, and Sens. Bert Stedman, R-Sitka, and Lyman Hoffman, D-Bethell, are all many miles away from where the gas lines would run.

The bill may have an easy path in the House, however. Chenault referred his bill to only two committees, the Resources and Finance committees. The four co-chairmen of those committees are all Southcentral Republicans.

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