Both House and Senate today approved Senate Bill 26, limiting the use of the Alaska Permanent Fund’s earnings, while using a rules-based portion of the fund for government services, and ensuring qualifying Alaskans a dividend.
The House voted 23-17, and the Senate 13-6 to concur with the substitute version developed in conference committee.
Gov. Bill Walker issued an immediate press release declaring victory, although SB 26 had been changed substantially from the version he introduced last year. It is still a rules-based approach to tapping the Permanent Fund Earnings Reserve Account, and he indicated he will sign the bill. He sat in the House gallery as debate occurred before the final vote was taken.
A sticking point for some Alaskans is the change from a simple word — “shall” to “may,” referring to how the Permanent Fund dividend is calculated. The word “may” was dropped from the final version.
But in fact, after the legal case brought by Sen. Bill Wielechowski, the State Supreme Court has already decided that the dividend is and always has been subject to appropriation, and so the wording simply reflects that reality, some senators said.
“Failure to act would have jeopardized the survival of the dividend,” said Sen. Hoffman of Bethel, co-chair of the Senate Finance Committee. “This bill establishes a responsible draw from the earnings reserve to preserve the dividend program, while helping fill our budget gap during these difficult fiscal times.”
The bill adopts an endowment management approach and caps the amount of money legislators may withdraw each year from the Permanent Fund Earnings Reserve Account, keeping the original dividend formula intact.
The Permanent Fund Board of Trustees has asked for this rules-based approach for over a decade, to allow fund managers to make prudent decisions, be more nimble, and get greater returns on investments. Without such a rules-based approach, the fund was forced into shorter term, more risk-averse decisions.
SB 26 limits, for three years, the annual draw from the Permanent Fund to 5.25 percent of the fund’s market value for five of the last six fiscal years (effectively 4.35 percent this year).
The Permanent Fund Corporation says this rate of drawdown is sustainable. After three years, the draw decreases to 5 percent.
The law allows lawmakers on an annual basis to decide how that drawdown is split between the dividend program and government spending.
Using the original formula, 2018’s dividend would have been $2,700 this year, but was reduced to $1,600 through earlier legislation. But by leaving the formula in place, future lawmakers could fully fund the dividend according to the original formula when the fiscal outlook gets better or when a new governor takes office.
ELECTIONS HAVE CONSEQUENCES
Many well-intentioned conservative voters may have voted for Bill Walker in 2014 because he promised to cut government spending right away and not take away the people’s dividends.
But Walker has been unwilling to use his veto pen for anything other than the dividend itself and tax credits to small oil exploration companies, both of which have been harmful to the economy.
Must Read Alaska reached out to thought leaders in the Senate and learned that for Senate Republicans, at least, the hope is that voters will send a conservative governor to Juneau who will actually use his veto pen next year, and that voters will also restore the House to Republican leadership.
With SB 26, some conservative legislators are looking at it as a temporary crisis, while in the future, the dividend could go back to the traditional formula when the state comes under “new management.”
Over in the House, this is an election year, and cutting the dividend is not popular with many conservative voters. The vote today will send about $2.7 billion into the State’s general fund.
The House votes crossed the political spectrum, with Rep. Harriet Drummond, one of the hardest left of the Democrats voting the same way as Rep. David Eastman, who anchors the far right:
DIVIDEND THROUGH THE YEARS
Established in 1976 after oil started flowing through the Trans-Alaska Pipeline, Alaskans voted to amend the state constitution to set aside a share of oil revenues in a sovereign wealth fund that would help pay for government in the future. Later, after the Fund was established, the dividend program was added as a way to share oil wealth with Alaskans and protect the Fund itself from irresponsible spending schemes.
The largest dividend was in 2015 at $2,072 and the smallest was in 1984 at $331.29. It has historically been based on a five-year average of the Alaska Permanent Fund’s earnings performance.