McGUIRE’S SB 114 WOULD HAVE SOLVED SO MANY PROBLEMS FOR ALASKA
As the Alaska Republican Party gets ready for a big Unity Gala on Dec. 6, it’s facing epic struggles from within — an argument between those who want the statutory Permanent Fund dividend paid, and those who are willing to pay out a dividend based on what downsized government programs don’t need.
A handful of hardline Republicans are even planning to picket the Unity Gala, calling those who attend compromisers and “rinos” — Republicans in Name Only. Among attendees? Gov. Michael Dunleavy and about 800 other Republicans who are trying to bring some harmony back to the party.
Those protesters risk marginalizing themselves and their message, falling on the sword of the Permanent Fund dividend, when so much more is at stake — including another $1 billion deficit faced by the Dunleavy Administration in the coming budget cycle, and dropping oil prices combined with flat production.
Far more things define Republicans than divide them. The Permanent Fund — as it’s currently paid — is problematic, in that it’s going to be a political football each and every year and lead to instability and division. Of course, Alaskans can thank former Gov. Bill Walker for making the dividend a political decision, but since he did so in 2016, the majority in Legislature has continued the “Political PFD” practice, rather than repair the formula itself.
Ultimately, this protracted argument over the statutory formula is one that didn’t have to occur. There was a solution offered in 2015 — an elegant solution.
SB 114 came from then-Sen. Lesil McGuire, who argued for a “Percent of Market Value” approach to tapping the earnings of the Permanent Fund. And a set formula for determining dividends going forward.
She fought for her legislation for two years, and in April, 2016, made one last valiant push for it in a commentary that ran in the Anchorage Daily News (then-Alaska Dispatch). Here’s what McGuire wrote in 2016:
By SEN. LESIL MCGUIRE
Hey, Alaska! Have you heard about a plan that would help stabilize government services, enhance our fiscal health, prevent a deficit-driven recession and ensure a dividend is still paid to every Alaskan?
By now almost everyone knows that the state is facing a very serious budget deficit. The Legislature has reduced spending by more than $1 billion over the last two years. We are currently looking for additional reductions and greater efficiencies. There have been tax proposals introduced. However, even a combination of taxes and budget reductions will never close the deficit. We have been saved before by rising oil prices. We will not be saved this time.
The word “petrichor” means the smell of rain. Many Alaskans believe the Alaska Permanent Fund was created as a rainy day fund — for when the revenue from our nonrenewable resources diminished. The volume in the trans-Alaska pipeline is so low oil would have to rebound to $110 per barrel to balance our budget. Does that mean it’s raining?
Einstein said, “You cannot solve a problem from the same consciousness that created it.” We need to find a new path. We will not raid the Permanent Fund.
Last April, I introduced Senate Bill 114. If enacted, the bill would cut the deficit in half. It would guarantee every eligible Alaskan at least a $1,000 dividend. Because it would not close the deficit entirely, it would maintain downward pressure on the size and spending of state government.
Here’s how SB 114 works: It would recalibrate where the dividend comes from by tying it directly to the royalties the state receives from mineral leases.
Responsible development means a bigger dividend.
Next, the bill would utilize part of the Earnings Reserve Account in a percent of market value calculation to yield a sustainable revenue stream for essential state services.
This is not a raid on the Permanent Fund. In fact, SB 114 would help protect the fund and the dividend program by restoring a measure of sustainability. This is not a way for government to increase its budget.
SB 114 connects Alaskans directly to our share of the natural resources, which belong to each of us. It protects the dividend into the future, because without a structural change the dividend will likely end in a few short years. This bill is a way to ensure essential services for Alaskans can be provided, such as: public safety, firefighters, roads, education, health and human services, the Alaska Marine Highway, parks and recreation, and fish and game management.
When I crafted SB 114 I had these principles in mind:
1) it must retain a dividend without making the dividend dependent on the size of government.
2) It must reduce the volatility in the state budget.
3) It must clearly expose the cost of government, and ensure Alaskans could begin an honest assessment of needs versus wants.
4) It must be enduring to allow the maximum use of our wealth over generations so the benefits and burdens are shared.
5) It must be simple and easy to implement.
This is a new path forward.
Without a new approach, our Constitutional Budget Reserve will be drained entirely in only two years. Once this happens, the single remaining source of funding for services will be the Earnings Reserve Account — the same one used to pay dividends. When that day comes, the state will have to make the difficult choice of paying out dividends or funding essential services for Alaskans.
Even if every new proposed tax was implemented immediately, the Earnings Reserve Account would still be in the financial crosshairs in just three years, placing the PFD in jeopardy.
If we take a new path, such as SB 114, the state will dramatically reduce income volatility and preserve the dividend program for future generations. There are two other proposals to re- engineer the use of the Earnings Reserve Account. Only SB 114 guarantees a dividend of $1,000 or more. The dividend has helped make Alaska a great place to live for decades. I remember the day when I received my first dividend check, and what it meant to me. I have a deep personal connection to the program, but if we don’t act soon to protect it, the dividend may go the way of the dinosaur.
If you like the dividend program, SB 114 is your bill. If you’d like to see reduced volatility in state budgeting, SB 114 delivers. If you’d like to see continued downward pressure on the spending of state government, then my bill make sense.
I can smell the petrichor in our path. At this critical juncture in Alaska history, SB 114 is a new path forward.
Sen. Lesil McGuire, R-Anchorage, served in the Alaska Legislature from 2001-2017.