Bill would tap permanent fund for construction

Posted: Tuesday, March 01, 2005

A bill filed Monday would tap earnings from a legal settlement within the Alaska Permanent Fund now worth $424 million to pay for capital projects in the state.

Under the proposal, submitted at the request of Gov. Frank Murkowski, the state would issue bonds to pay for $343 million in projects such as road construction and building a University of Alaska science center.

The bonds would be paid for by earnings from the Amerada Hess lawsuit that was concluded in 1995. The state earnings from that settlement are estimated to be $30 million per year and go back into the permanent fund's principal.

Murkowski's proposal calls for funding capital projects in several state agencies, from $2 million for the Unalaska boat harbor to $1 million to replace the roof of the Pioneer Home in Juneau.

The largest chunk - $260 million - would go to the Department of Transportation and Public Facilities for road building and upgrades, as well as airport and harbor maintenance.

A corporation called the State of Alaska Capital Corp. would be created to sell the capital project bonds, separating them from other state debt.

The settlement between the state and oil companies over trans-Alaska pipeline royalties is now worth $424 million, including interest earned since 1992, according to the state Office of Management and Budget.

The earnings from the Amerada Hess settlement cannot not be used in permanent fund dividends, and so the earnings each year go back into the fund.

"It has no effect whatsoever on the dividend today," said Permanent Fund Corp. Executive Director Mike Burns. "Like I said, it's a self-licking ice cream cone."

The Legislature adopted that rule on earnings from the settlement after oil producers charged that no Alaska judge or jury could be impartial in the case because they had a financial stake in the outcome.

Repealing that rule now would likely mean reopening the argument, according to a Jan. 28 opinion written by Assistant Attorney General Wilson Condon.

The Legislature would be within its rights to repeal the rule, but there would be a risk, he wrote.

Oil producers "will contend that any segregation requirement will eventually be repealed, and the money thereafter commingled with PFD funds," Condon wrote. "Thus, under their argument, judges and jurors will retain an expectation of recovery from the proceeds in the matter before them, thereby requiring their disqualification."

A separate opinion by the Legislative Affairs Agency on Feb. 4 agrees that the rule can be repealed, and that may have been the intent of the Legislature.

But if the rule separating Amerada Hess money from the rest of the permanent fund is struck down, there would no longer be any distinction between it and the rest of the fund's earnings, the opinion says.

"It would be available, along with all other money in the earnings reserve account, for distribution for permanent fund dividends, for inflation-proofing the fund, and for appropriation for other purposes," said the opinion by Tamara Brandt Cook, director of Legal and Research Services.

House Finance Committee member Eric Croft, D-Anchorage, said the idea that a $5 to $10 bump in permanent fund dividends can influence a judge is nonsense. However, he said, Murkowski is breaking his promise not to touch the permanent fund without a statewide vote by filing this bill.

"This is use of permanent fund earnings and I don't see a vote of the people. They are using legal technicalities to do what they can't get permission to do," Croft said. "Once government starts taking permanent fund earnings, I don't think they ever stop."

The Murkowski administration says the governor's promise is intact because the Amerada Hess earnings do not figure in dividends.

House Finance Committee Co-Chairman Kevin Meyer, R-Anchorage, said Monday that he supports the measure. There is a finance committee hearing scheduled for Tuesday on the proposal.

"Amerada Hess is pretty much going to determine if we have a capital budget," Meyer said.

House Majority Leader John Coghill, R-North Pole, said anytime the Legislature looks to the permanent fund, it becomes a political question, but "I think people are warming up to the idea."

The proposal to use the Amerada Hess money for capital projects means the funds will serve a public purpose instead of just growing, said Office of Management and Budget Director Cheryl Frasca.

Without using Amerada Hess funds, Frasca estimated there would be about $122 million available for capital projects.



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