THE OPENING BID FOR THE PFD IS $1,600, BUT LIKELY TO BE AMENDED
Senate Bill 1002, Permanent Fund dividend payout legislation, was the subject of thoughtful discussion in Senate Rules Committee today, before being sent to the Senate Floor for consideration on Tuesday’s calendar.
Sen. Bert Stedman of Sitka drew the short straw to explain how that number was reached, where the funds would come from, and the rationale behind it.
Last year’s dividend was $1,600, he explained. Lawmakers just didn’t want to go lower than last year. “There is no magic to the $1,600,” he said, other than the sense that the previous amount under discussion — $1,200 — was too low.
Gov. Michael Dunleavy has said that the statutory formula for the dividend would mean $3,000 dividends this year, but some senators and House members are saying that, considering the State’s fiscal situation, that is unwise.
Stedman pointed out that the vast majority of the committee was born in Alaska, and some before Statehood, and they grew up during a time before oil, when “times were tough, but they survived just fine.”
Then oil started flowing: “We lived in a very fruitful time period,” he said, and the oil revenues made a lot of improvements to Alaska to bring it up to on par with the rest of the United States.
“We set aside $60-65 billion. If we now devour our current revenue and start eating our seed capital, we’re hurting our descendants,” Stedman explained.
SB 1002 proposes three funding sources for paying the $1.07 billion payout for the dividend, and none of those sources are eating into the Earnings Reserve Account: $770 million would come from the General Fund, $172 million would come from the Statutory Budget Reserve, draining that account, and $128 million would come from the Higher Education Fund, although the amount would change depending on how many Alaskans end up qualifying for this year’s dividend.
The way Stedman explains it: All funds are General Funds, which comes from taxes on resources, mainly oil extraction. Lawmakers can’t separate out one dollar from another, and only pay dividends from exact dollars that come from oil wealth. The funds are comingled.
Stedman, who is co-chair of Finance, wants to stay out of the Earnings Reserve Account of the Permanent Fund, because dipping into that fund would, for one thing, send a signal to Permanent Fund managers that the Legislature is coming after the account, and then managers would have to invest with that in mind; they’d hoard more cash and change their investment targets and asset allocation modeling to adjust to a potential raid on the fund, or “cash call,” as Stedman put it.
Legislators passed SB 26 last year, which makes a “structured draw,” or a set draw on the earnings of the Permanent Fund of 5.25 percent this year and 5 percent in subsequent years. That is in statute, Stedman explained. He also acknowledged there is a another Alaska Statute that addresses how Permanent Fund dividends are to be calculated, and that statute would set this year’s check at $3,000. “Its common for people to talk about one statute and ignore the other,” Stedman said, acknowledging that there are two statutes in conflict with each other.
General fund operating budget is $4.4 billion this year, not counting the dividend. The dividend at $1,600 represents one quarter of all other obligations, Stedman said.
The discussion will continue on the Senate Floor tomorrow when the bill is brought back. All members of the Rules Committee signed to move it to the floor, with Sen. Mia Costello the only one recommending changes.
If the $1,600 dividend passed both bodies, it’s likely the governor will veto it, along with other spending, and ask the Legislature to come back into session to try again.
“This bill kills the Permanent Fund Dividend as we know it. The PFD is your share of Alaska’s mineral wealth, and there should be no change to the dividend without a vote of the people,” said Gov. Dunleavy. “That’s what I promised on the campaign and that’s the promise I intend to keep. I cannot and will not support this legislation.”
“SB 1002 severs the dividend from the Earnings Reserve Account and market activities, and further dismisses the statutory formula of the dividend that has been in place for nearly 40 years. As proposed, the legislation ignores longstanding laws and overwhelming public support for a full PFD. Alaskans have been diligent in providing testimony and urging the legislature to stop using the Permanent Fund as a political piggy bank to support a larger government,” his office said in a press release.
“Let me be clear, this is a non-starter. If passed, I will veto SB 1002. I encourage an amendment that would restore a full PFD to the people. Follow the law— that’s what Alaskans have demanded and deserve,” said Governor Dunleavy.