Since 2016, no issue has divided Alaska state lawmakers more than the issue of the Permanent Fund dividend. The annual struggle over the amount given to state residents has repeatedly driven the Alaska Legislature into impasses that have brought the state of Alaska to the brink of a government shutdown.
Ahead of this year’s governor election, independent candidate Bill Walker, Democratic candidate Les Gara and Republicans Mike Dunleavy and Charlie Pierce have each outlined different approaches to solving the impasse, which voters have said is a top issue of concern.
Before 2018, the main use of the Permanent Fund was to serve as an investment savings account and to pay dividends according to a formula that has been mostly unchanged since its inception in the 1980s.
In 2018, the Alaska Legislature and then-Gov. Bill Walker approved a system setting up an annual transfer from the Permanent Fund to the state treasury.
At the time, state oil revenue had collapsed, and legislators believed spending from the Permanent Fund was necessary to preserve services. A portion of the fund, its corpus or principal, is constitutionally protected, but money earned from the investment of that principal can be spent with a simple majority vote of the Legislature.
For decades, fear of constituents’ backlash combined with longstanding precedent to block various attempts at spending from the fund. But in 2018, the situation appeared dire, and lawmakers believed it was necessary to spend from the fund on services.
At the same time, they believed that if they began spending, future legislators and governors would be encouraged to spend from the Permanent Fund without limit, and so they agreed to limit withdrawals to 5% of the fund’s five-year average value, skipping the most recent year.
For the current budget, covering fiscal year 2023, that transfer is $3.36 billion.
Crucially, they didn’t say how much of that transfer should be reserved for dividends and how much should be reserved for services.
As a result, every year since then, state lawmakers and the governor have argued over the proper split.
Charlie Pierce – traditional formula
Kenai Peninsula Borough Mayor Charlie Pierce, running as a Republican in this year’s gubernatorial race, advocates paying dividends according to the traditional formula from the 1980s.
On his website, Pierce states that “the statutory PFD is an Alaskan right and should be restored in full. A Pierce administration will make restoration of the statutory PFD a priority.”
If the traditional formula had been used in the current fiscal year, it would have cost $2.65 billion, more than two-thirds of the transfer from the Permanent Fund, and paid between $4,000 and $4,200 per recipient, with estimates varying based on a variety of factors, including the number of recipients.
The drawback is the same one that confronted lawmakers in 2018: Unless oil prices are high, using the traditional dividend creates a deficit at present levels of spending.
That means additional taxes or significant budget cuts are needed to balance the budget when using the traditional formula.
The FY23 budget passed by legislators and the governor includes about $6.25 billion in spending before the dividend is considered. (Additional spending was also retroactively added to the FY22 budget in this year’s legislative session.)
This spring, when lawmakers were drafting the budget, they expected to have $8.3 billion in revenue.
Adding the $6.25 billion in spending on services and the $2.65 billion in dividends results in $8.9 billion, a deficit of about $600 million. If oil prices fall below what was expected, the deficit will be larger.
In an Oct. 6 candidate forum in Homer, Pierce indicated that he would support budget cuts to balance the budget if a traditional dividend is paid.
“I don’t support taxation, we don’t need taxation,” he said.
At the forum, Pierce did not outline specifics but criticized prior legislators for failing to “cut any of the operating budget to any significant amount.”
“I would focus on the budget,” Pierce said. “Balancing our budget would be a big part of my day.”
Budget experts have questioned whether cuts on the necessary scale are possible.
Mike Dunleavy – 50/50 formula
In 2018, Republican Gov. Mike Dunleavy ran for office with a pledge to use the traditional formula.
He proposed vast budget cuts in order to make that possible, but Alaskans reacted negatively, starting a recall campaign to remove him from office.
Dunleavy later reversed himself on many of the cuts, and in 2021, he proposed a new dividend formula called the 50-50.
Under that plan, the annual transfer from the Permanent Fund to the state treasury is split in half, one half for services and the other half for dividends. It’s a decrease from the traditional formula.
The 50-50 approach was used this year, with $1.68 billion set aside for a dividend of about $2,600 per recipient. State lawmakers added a special one-time energy relief payment on top of that, resulting in this year’s payment.
As he runs for re-election, Dunleavy is continuing to boost the 50-50 plan on his campaign website and in candidate questionnaires.
Dunleavy has said he believes the 50-50 split should be enshrined as an amendment to the Alaska Constitution in order to avoid perennial arguments over the value of the dividend.
Though the traditional formula is in state law, the annual state budget is also a state law. If two laws conflict, the newer law takes precedence unless overturned in court, and in 2017, the Alaska Supreme Court ruled that “absent another constitutional amendment, the Permanent Fund dividend program must compete for annual legislative funding, just as other programs.”
Dunleavy has also said that a constitutional amendment would provide a statewide referendum on the issue, allowing individual Alaskans to decide.
Thus far, the Alaska Legislature hasn’t approved Dunleavy’s plan, in part because of fears that the 50-50 approach would create a deficit at low oil prices.
Les Gara – tax-funded approach
In numerous campaign appearances, Democratic gubernatorial candidate Les Gara has said that the state should revise its oil tax system in order to pay for both a large dividend and for services that Alaskans want.
“With oil tax reform, you can fund schools, you can fund the construction and community project budget, you can fund all the things we need in this state, and you can fund a dividend,” he said Monday afternoon.
Gara has called for revising the tax credit system included within the state’s oil tax production system.
As a state legislator, Gara supported the traditional dividend formula only if oil revenue reached a sufficient threshold. Asked about his preferred distribution formula now, Gara said only that it would call for a payment of at least $2,200.
Would it be constitutionally guaranteed?
As a legislator, Gara supported a constitutionally guaranteed dividend, but as a governor candidate, his approach is more cautious.
“I think the best way to protect the dividend is to have revenue. And the biggest enemy to the dividend is not having a fair share for oil so we don’t have the revenue, and then you put the dividend in competition with schools, in competition with troopers, in competition with prosecutors, in competition with a construction budget,” he said.
Gara was unclear about what happens if he is elected and the Legislature rejects his oil tax proposals. He has previously said he will oppose an income tax as an alternative idea.
“I think the answer is if you have leadership from a governor, they will agree to tax changes,” he said.
Bill Walker – ambiguous approach
In 2016, then-Gov. Bill Walker oversaw the beginnings of the Permanent Fund dividend struggle. Facing an oil price shock, he vetoed half of that year’s dividend, an act that kept billions in the fund to be re-invested but cratered his support among voters.
“I made some really tough decisions,” he said Oct. 5 in Juneau. “And I knew how unpopular they were going to be when I made them. Someone had to do it.”
“I did what I had to do to protect the Permanent Fund,” he said.
Walker’s veto effectively ended the traditional dividend formula. Every year before it, state lawmakers followed the formula, and every year since then, lawmakers have ignored it in favor of smaller payouts.
Walker lost his 2018 re-election bid amid a campaign that was also derailed by a scandal involving his lieutenant governor, but he’s now seeking a second term and doesn’t regret his past decisions.
While he’s certain that he made the right call in 2016, he’s less certain about what will replace the old dividend system.
In interviews, he has said he isn’t wedded to a specific approach and will consider any approach that can pass the Legislature.
“My plan is whatever will get 21 and 11,” Walker said, referring to the number of votes needed to get a bill through the state House and Senate, respectively.
“I’m not wedded to saying ‘it’s got to be my solution,’ and I’m not going to pick one (option) and say, ‘OK, here’s my solution,’” Walker said.
Walker said that breaking the 2018 withdrawal limit from the Permanent Fund is not acceptable, but he fully intends to consider all other options.
“My only commitment is that we will resolve it,” he said.
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