Lawmakers pass permanent fund draw, spar over PFD effect

For the first time in the Alaska Permanent Fund’s 40-year history, the Legislature has adopted a plan to draw money from the fund to pay for state government. Gov. Bill Walker said he’ll sign the bill. Supporters said it protects the fund.

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But opponents are concerned about the pressure it could place on permanent fund dividends.

There’s been a lot of uncertainty over the $65 billion permanent fund’s future.

But Nome Democratic Rep. Neal Foster said Senate Bill 26 removes that uncertainty. Both legislative chambers passed it Tuesday.

“The Permanent Fund Corporation has been asking for stability and predictability, so that they can plan how they invest,” Foster said. “SB 26 allows that to happen.”

Alaska’s state government is spending $2.4 billion more than it’s bringing in, in taxes, fees and oil royalties. And the piggy bank it’s used to cover past deficits – the Constitutional Budget Reserve – is low.

The bill draws roughly 5 percent of the fund’s market value.

“SB 26 does not specify how these funds are to be split,” Foster said. “That will be left to future legislatures to determine.”

In the Senate, Eagle River Republican Sen. Anna MacKinnon said limiting the draw prevents the Legislature from spending down fund earnings so that dividends disappear.

“The bill before us guarantees Alaska’s dividends into the future, for my children and my grandchildren,” MacKinnon said.

But the effect on PFDs concerns some bill opponents. They’re split between Republicans who want deeper cuts to government services and Democrats who want some combination of higher oil and gas taxes and an income tax to shore up the budget.

Juneau Democratic Rep. Sam Kito III said the state should look at more taxes, since Alaska can’t rely on oil revenue.

“We need to start being adults, and figuring out what do we want as a state government, then figuring out how we’re going to pay for it, instead of continuing to try and milk a cow that right now is – I’m worried about — getting way too skinny,” Kito said.

North Pole Republican Rep. Tammie Wilson said she’s concerned that spending will squeeze out the dividend once the Constitutional Budget Reserve is spent.

“I have seen nothing in the history since I have been here that shows that we will be able to stop spending money,” Wilson said. “And at this point, all I can use is the budget that we currently have before us. And with this bill passed as is – and no Constitutional Budget Reserve – then there would not be any more than a couple hundred dollars left for the dividend.”

Some bill opponents said the only way to protect dividends is to enshrine them in the state constitution.

Even with the earnings draw, next year’s budget will have a roughly $800 million gap. The Legislature will likely turn to the CBR to close the gap. But it won’t have that option for many more years.

Gov. Walker said the bill is an important step. Walker generally takes time to review bills, but he said minutes after the House adopted it that he’ll sign it.

“You know, it’s not something we take lightly,” Walker said. “These are tough, tough decisions. There’s no question about it. But, you know, they had to be made.

Dividends would be $1,600 this year under the House and Senate budget proposals. For the third straight year, dividends would be more than $1,000 less than they would be under the formula written into state law.

The Senate passed the bill on a 13 to 6 vote, with Palmer Republican Sen. Shelley Hughes joining the five minority-caucus Democrats in voting no.

The House passed it, 23 to 17. The majority caucus voted 15 to 7 in favor, while eight minority-caucus Republicans voted in favor and 10 voted no.

The bill is a major step toward the Legislature finishes its work on the budget and ending the session.