JAY HAMMOND’S VISION OF PERMANENT FUND MAY BE ON VERGE OF SUNSETTING
Gov. Bill Walker’s $6.06 billion operating budget (unrestricted and designated funds combined) uses the Alaska Permanent Fund Earnings Reserves Account (ERA) to pay for government operations.
This is a new condition that has raised some red flags among budget hawks.
The ERA has always been used to pay Alaskans their Permanent Fund Dividends and inflation-proof the corpus of the fund.
Walker’s budget relies on the use of the Permanent Fund by taking roughly $5 billion from the ERA within the Permanent Fund, leaving just $3 billion in the fund.
By stripping the ERA, the governor will tap close to 10 percent of the Permanent Fund’s entire value to pay for state operations for both FY 17 and FY18. This maneuver may be why his cuts to unrestricted general fund spending are a paltry 0.6 percent.
Senator Mike Dunleavy, a budget hawk from the Mat-Su & Copper River valleys, said that while the drawdown of the ERA may be legal, this also may be the biggest fund transfer in state history, and it comes with a budget that has minimal reductions in spending.
“The people of Alaska should be greatly concerned by a transfer of funds of this magnitude,” he said, adding that FY17’s budget is already paid for and did not need the injection of cash.
Appropriating funds from the Permanent Fund’s ERA into the general fund of the current year’s budget also is unusual because additions to current year budgets are normally done through a supplemental budget request for unexpected expenses.
FOLLOW THE MONEY
The governor’s move to strip the Earnings Reserve Account may have another, more political goal.
If the Legislature has less money “available for appropriation” in the current year than what was appropriated in the previous year, the legislative majority can access the Constitutional Budget Reserve without a three-quarters vote. No super-majority is needed.
With the budget he has proposed that drains the ERA, the governor may be attempting to marginalize the House Republican Minority.
Since the ERA is technically available for appropriation, by stripping it of most of its money, the governor could set up the condition described in Article 9, 17b of the Alaska Constitution.
Walker will only need the Democrat-led House Majority and a compliant Senate majority. The minority in the House — the Republicans — could not withhold their support in order to get deeper budget cuts. The governor will have removed their leverage to downsize departments.
Last year, Governor Walker proposed rolling all the reserve accounts into the principal of the Permanent Fund, and then restructuring the fund entirely, under SB 128, to provide stable ongoing support for state services. That bill did not pass.
But his current budget proposal is, in essence, enacting portions of SB 128. Only this year, he’s moving money the opposite way — instead of moving all the funds into the Permanent Fund, he is moving nearly 10 percent out of it.
Our sources in the Capitol tell us that is precisely the governor’s thinking.
To what end? Walker is keeping budget cuts to a minimum and maintaining spending at unsustainable levels by diverting 10 percent of the Permanent Fund.