Since the Senate passed the bill last week that would draw money from the Permanent Fund to pay for state government, two things have happened. One is that many Alaskans have raised concerns with the part of the bill that would cut Permanent Fund dividends in half, (from $2,000 to $1,000). The other is that the bill was sent to the House, where it’s having a harder time moving. In fact, it might not even get out of the Finance Committee.
Andrew Kitchenman of APRN and KTOO in Juneau has been following the bill’s progress.
TOWNSEND:What’s stopping the bill?
KITCHENMAN: There’s two different things going on. Some conservative Republican members say they can’t justify cutting the PFD without making deeper cuts to state government. For example, North Pole Representative Tammie Wilson says Governor Bill Walker should veto at least $500 million.
TOWNSEND: Are the conservative members saying what exactly they’d like to cut?
KITCHENMAN: Some would like to stop pay raises for government workers. And there other items that were added to the budget before it passed that they had wanted to cut. But it’s tough to get these numbers to add up to a large share of the $3+ billion deficit.
TOWNSEND: How about the Democrats?
KITCHENMAN: They also aren’t happy. They don’t want to tell voters they cut their PFDs without making deeper cuts oil and gas tax credits. They’re also concerned about a part of the bill that could limit revenue.
But Walker Administration officials explained more details about that section that made it clear that the revenue limit isn’t as strict as some lawmakers feared. For example, it wouldn’t start until oil and gas revenues reached $1.2 billion, which is projected to happen in the next 10 years. And as oil production falls, it also will be less of an issue.
TOWNSEND: So who’s for the bill?
KITCHENMAN: Well, the Walker Administration, and some legislators who say cutting PFDs now would make the dividends more likely to continue into the future.
The state has two savings accounts. The Constitutional Budget Reserve is the one that’s usually used to close state budget deficits. The problem is there’s only about seven billion dollars left, and the state’s deficit is over three billion. So – without changes — within two years, the state government would start to draw on the other savings account – Permanent Fund earnings. And there’s only about eight billion there.
State Revenue Commissioner Randall Hoffbeck explained the problem.
HOFFBECK: “By fiscal year 2018, the BR would be depleted and that we would start drawing down on the Permanent Fund Earnings Reserve. That’s anticipated that that would last a little bit more than two additional years. So somewhere in the neighborhood of 2021, the earnings reserve would be depleted. And at that point in time, there wouldn’t be any dividends.”
So he makes the case that the state must cut the PFD in order to save it.
TOWNSEND: The special session that started three weeks ago is scheduled to end next Tuesday. What happens if the House doesn’t pass the Permanent Fund bill?
KITCHENMAN: Governor Walker is likely to call another special session in Juneau. But many legislators aren’t eager to spend more of the summer here, so they might gavel out without taking up the bill.
That could set up a situation in which the state government draws more than three billion from the Constitutional Budget Reserve this year without a long-term fiscal plan. It almost certainly will lead to more downgrades in Alaska’s state credit rating, like the one that Fitch made today. And it’s a scenario that Governor Walker has said he won’t accept.
Finance Committee Cochairman Republican Steve Thompson of Fairbanks says many people have focused on the threat of an immediate cut, but aren’t as aware of the long-term threat to PFDs.
THOMPSON: “If we don’t cap it at this time, in three to four – five years maybe, at the most – the earnings will be gone and the Permanent Fund will go to zero. They’ll have no dividend check.”
KITCHENMAN: Thompson would like to see a compromise on the bill this week. And the Finance Committee is meeting to hear public testimony on the bill tonight.
Andrew Kitchenman is the state government and politics reporter for Alaska Public Media and KTOO in Juneau. Reach him at akitchenman@alaskapublic.org.
