Permafund plan gains support

House Finance set to use earnings to pay for state government

Posted: Friday, March 22, 2002

The House Finance Committee was poised today to tap into permanent fund earnings for more than $1.1 billion next year.

A proposed endowment concept for the permanent fund, along with targeted revenue for schools and infrastructure maintenance, appeared this morning to have widespread approval on the committee, which was to resume deliberations later today.

And there was unanimous approval for the municipal dividend bill that would replace general fund spending on aid to municipalities with at least $59 million in permanent fund earnings. That bill also includes incentives to create municipalities in unincorporated areas.

Under the endowment plan, payouts from the permanent fund for dividends and government would be based on five-year average market value, rather than average earnings an attempt to stabilize the revenue stream and build in inflation-proofing.

The payout phase-in, based on the plan by the bipartisan Fiscal Policy Caucus, would be 7 percent of market value next year, 6 percent the following year and 5 percent thereafter.

Permanent fund officials have testified that 5 percent is the high end for payouts that ensure inflation-proofing, suggesting that the purchasing power of the fund might diminish during the transition.

The payout plan presented by House Finance Co-Chairman Bill Williams, a Saxman Republican, would be 40 percent for a new education fund within the general fund, 20 percent for an infrastructure and economic development fund within the general fund, and 40 percent for the dividend program. Education funding has lost ground to inflation for many years, and there is an estimated $1 billion backlog statewide in maintenance or construction of public facilities.

The Fiscal Policy Caucus had recommended a 50-50 split between dividends and government.

Juneau Republican Rep. Bill Hudson, the fiscal caucus co-chairman, generally called Williams' approach "excellent" but offered an amendment to give dividends 50 percent, with either a 10-40 or 15-35 split between the infrastructure and education funds. The committee didn't act on the amendment before breaking for a House floor session.

Rep. John Davies, a Fairbanks Democrat, said the 50 percent level would attract more votes. Hudson said the difference between 40 percent and 50 percent for dividends is about $300 a check.

"I was reading an interesting article about game theory," said Rep. Eric Croft, an Anchorage Democrat. "Basically, when you offer anything less than 50-50, even if it's illogical ... there's a big tendency of people to say no, even though that means we both don't get anything."

At a 40 percent share of the payout, dividends would be about $1,190 in 2003, with the 7 percent payout keeping them near the level they would have been, anyway. But, thereafter, projections are for dividends of $1,000 and less through 2012.

Rep. Ken Lancaster, a Soldotna Republican, said the public must keep in mind that without any action on the state's $1 billion-plus fiscal gap there will be no dividend program by the end of the decade.

"This really protects the folks' permanent fund dividend into the future," Lancaster said. "If we don't do this, they won't have a dividend to be fighting about."

"One-hundred percent of nothing is still nothing," agreed Rep. Con Bunde, an Anchorage Republican.

The education fund would get $741 million in fiscal year 2003, and the infrastructure fund is projected to receive $371 million.

Because of the constitutional prohibition against dedicated funds, the Legislature technically could spend the money for other purposes. But creating the separate accounts is intended as a political disincentive to do that and as a message to the public that permanent fund earnings will be spent on core government functions.

Later on today, the committee was expected to take up a proposed 3 percent state sales tax. The deliberations are scheduled to continue Saturday morning. At some point, an amendment for an income tax is expected.

Bill McAllister can be reached at

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