The outlines of changes to the Permanent Fund became clearer on Tuesday. Senate Finance Committee introduced a bill that would pay for much of the state government’s budget using the Fund’s earnings. It also would reduce residents’ Permanent Fund dividends, but make them more stable for the future.
The bill could be the basis for moving the state government away from a decades-long dependence on oil revenue.
Senate Bill 128, which based on Governor Bill Walker’s proposal, would pay about $2.5 billion dollars from the Permanent Fund toward the budget, rising to $3 billion in eight years.
It wouldn’t completely close the budget gap. But it would reduce state draws on the budget reserves enough that Senate Finance Committee Co-Chairwoman Eagle River Republican Anna MacKinnon believes it would put the state on sounder financial footing.
“I do think that we can come together on this portion, this leg of the journey, in helping the creditors that are watching Alaska,” MacKinnon said. “I think this is a huge step forward. We diversify our revenue stream by almost 40% under this proposal.”
Dividend checks would be $1,000 for the next three years, and similar amounts after that. Walker has pointed out that without changes to current law, the checks could disappear in as little as three years.
Legislative Finance Director David Teal said the bill would increase the state’s financial stability. The deficit would fall from more than $3 billion this year to less than $500 million in six years.
“The reserve balance is slightly lower but your deficit is so much lower that your glide path is much better under this bill than under the current status quo,” said Teal.
The key feature of the bill is that it would pay out 5.25% of the fund’s market value toward the state. Of that payment, 20% would be devoted to dividends, with the rest going to the budget. In addition, about 15% of oil royalties would also support dividends.
Revenue Commissioner Randall Hoffbeck was cautiously positive toward the bill, saying that it gives the administration and legislature something to work with.
“We have a mechanism now for using the earnings reserve,” Hoffbeck said. “And that’s a major step forward and we’re excited to start working on it.”
Senator Mike Dunleavy says he thinks the latest bill isn’t the final word on the state government’s finances. He wants a legal limit on spending.
“This is the opportunity to really take advantage of it,” said Dunleavy. “And put some brakes on our desire to spend. I’ve probably heard a thousand different reasons why we should spend more money. Even though we’re at this point more than four billion dollars less revenue than we’ve had in the past.”
MacKinnon says the bill is the results of months of work by legislative staff. She wants it to be something that will draw support in the Legislature and from Walker – without relying on an income tax.
“We’re looking for consensus in both bodies as well as with the administration,” MacKinnon said. “The idea is to stabilize Alaska’s income stream and protect Alaskans.”
The Senate Finance Committee plans to hold a hearing on the bill tomorrow. Both Houses have until the scheduled end of the session on Sunday, April 17th, to pass the bill.
Andrew Kitchenman is the state government and politics reporter for Alaska Public Media and KTOO in Juneau. Reach him at akitchenman@alaskapublic.org.
