Alaska Senate votes to spend Permanent Fund to balance portion of state deficit

Senators agree with House on dividend amount, size of draw from fund

Editor’s note: This story has been updated. The prior version of this story is appended below.

 

The Alaska Senate approved a bolstered state budget late Thursday, marking the first time in state history that both House and Senate have approved a proposal that requires the Alaska Permanent Fund to pay for ordinary government services.

The Senate’s 13-7 vote follows one earlier this month by the Alaska House of Representatives and sets up an end-of-session compromise that will see the House and Senate spending plans compared and combined into a final product.

“It’s an honor to be here today, but it is a struggle,” said Sen. Anna MacKinnon, R-Eagle River, as she spoke before the climactic vote.

The vote was along caucus lines: All 13 members of the Senate Majority voted for it; all five minority Democrats and two independent Republicans voted against it.

MacKinnon and others were emotional as they took an action that, since the creation of the Alaska Permanent Fund in 1976, has never been performed by the Senate.

Since its creation, the fund has amassed almost $65 billion through investments and the gleanings of Alaska’s vast oil deposits. Until now, the state has used the fund only to pay the annual Permanent Fund Dividend and on a handful of minor, mostly dividend-related, items.

But Alaska faces a budget deficit of almost $2.5 billion, and it has endured even larger deficits since oil prices began an extended plunge in late 2014. Until now, the state has balanced that deficit with budget cuts and savings from accounts filled during the fat years of the late 2000s and early 2010s.

That is no longer an option: The state’s principal savings account, the Constitutional Budget Reserve, is expected to have only $2.2 billion remaining when the state fiscal year ends on June 30, and lawmakers are unwilling or unable to make additional significant budget cuts.

“You have said we have cut to the bone,” said Sen. Tom Begich, D-Anchorage, addressing members of the Senate Majority.

He went on to add that the state appears to be at funding levels that endanger constitutionally mandated services.

“We have cut to that point,” he said.

MacKinnon disagreed.

“We could have cut the budget further, but the majority decided to not go in that direction,” she said.

Spending appears to have bottomed out. The spending plans approved by the House and Senate this month are larger than the ones approved by lawmakers late last year. Furthermore, lawmakers are expected to amend last year’s budget with hundreds of millions in additional expenditures, a further sign that the previous budget was artifically low.

With the Senate adamantly in opposition to income taxes and higher taxes on oil and gas development, turning to the Permanent Fund is the only option available in the minds of many senators.

The budget approved by the Senate late Thursday calls for $2.7 billion to be spent from the Permanent Fund in the fiscal year that starts July 1. Of that total, $1 billion will be spent on the Permanent Fund Dividend, generating a dividend of about $1,600 per person.

Amendments that sought to increase or alter that amount were defeated in the leadup to the final vote.

With $1 billion reserved for dividends, $1.7 billion will be spent from the fund on everything from schools to snowplows. The remaining $700 million needed to fill the deficit will come from the budget reserve.

The proposal to spend from the Permanent Fund has been the most contentious of the decade in Alaska politics. Since 2016, lawmakers have considered various ideas to use the Permanent Fund as a budget-balancing tool, but never before have both the House and Senate agreed to do so.

Despite requests from the trustees of the Alaska Permanent Fund Corporation, the Legislature has not yet agreed on long-term limits to spending from the Permanent Fund. This year’s budget is a one-year appropriation, and the door is open to more, should legislators approve.

The core of the Permanent Fund is constitutionally protected: A vote of Alaskans is needed to spend it. Money earned by investing that core is not protected, and that is what both the House and Senate have voted to spend.

In an attempt to reduce the strain on the Permanent Fund, lawmakers have settled on a dividend of $1,600 per person. Under the traditional formula used in most years since 1982, that dividend would be almost $2,700. Paying that amount would have required almost $2 billion, more than most lawmakers were prepared to spend.

Minority Democrats and independent Republicans said the cuts to the dividend amount to a tax on Alaskans, and unlike an income tax, cuts to the dividend fall on Alaskans alone. Nonresident workers pay nothing.

Furthermore, because the cut to the dividend impacts every Alaskan by the same amount, the cut is proportionally heavier on poor Alaskans because they earn less money and the dividend makes up more of their income.

“The impact of those dividend cuts falls on the poorest Alaskans,” Begich said.

MacKinnon responded that she reluctantly feels it is the only option available.

“I would have never thought that I would have to stand here and defend touching a Permanent Fund Dividend,” she said.

The Senate’s approach to the Permanent Fund matches the one previously approved by the House.

The two bodies differ on a variety of other elements, however.

The House has approved a $942 million transfer into the protected corpus of the Permanent Fund. The Senate has not.

University of Alaska campuses across the state would get $19 million more than sought by Gov. Bill Walker under the House budget. The Senate budget includes $5.5 million more than the governor’s request.

The House proposed giving the Alaska Gasline Development Corporation the ability to accept up to $1 billion in investments for the proposed trans-Alaska natural gas pipeline; the Senate did not.

The state owes as much as $1 billion in incentive payments to oil and gas companies; the House proposed a $49 million payment on that debt. The Senate has proposed a $184 million payment. Neither body is considering a proposal by Gov. Bill Walker to borrow money to pay that debt.

Senate approval of its spending plan sends it to the House for consideration. The House is expected to reject the Senate’s ideas, an action that will lead to the opening of a conference committee to draft a compromise.

***

*** Editor’s note: This story was published at the Empire’s print deadline Thursday evening. ***

The Alaska Senate has voted to keep this year’s Permanent Fund Dividend at $1,600.

With a pair of votes Thursday afternoon, senators rejected proposals from Sen. Shelley Hughes, R-Wasilla and Sen. Bill Wielechowski, D-Anchorage, to boost the amount of the annual investment payout for every eligible Alaskan.

Senators were still debating the state operating budget by the end of the business day Thursday.

The $1,600 figure for the Permanent Fund Dividend was set by the budget proposed by the House of Representatives and upheld by the Senate Finance Committee earlier this month. The amount is a cut of $1,100 from the traditional formula used by the state with few exceptions since 1982. It’s also more than the $1,250 proposed by the House Finance Committee.

A workweek of negotiations in the House resulted in the $1,600 amount.

Hughes had proposed boosting the payout to $2,150 per person; Wielechowski had proposed a measure that would have granted Alaskans an additional payout at some point in the future. That payout would have been equivalent to the difference between the traditional formula and the amount actually approved by lawmakers this year, in 2017 and 2016.

With the House and Senate agreed on a dividend amount, the annual payout will not figure in the end-of-session negotiations that take pflace as lawmakers compromise the differing spending plans produced by the House and Senate.

Senators also turned down a proposal to proof the Permanent Fund against inflation with a $942 million transfer into the constitutionally protected portion of the fund.

That transfer was approved by the House, and the Senate’s rejection of the idea means it will figure into the end-of-session negotiations between the House and Senate. The Legislature has not approved an inflation-proofing payment since 2015, and lawmakers did not consider a request from Gov. Bill Walker and the trustees of the Alaska Permanent Fund Corporation to make payments that make up for those missing transfers.

The House and Senate are proposing roughly the same amount of spending, and each has proposed filling the state’s multibillion-dollar deficit with $1.7 billion from the Alaska Permanent Fund and about $700 million from the Constitutional Budget Reserve, the state’s principal remaining savings account. (Another $1 billion will come from the Permanent Fund to pay dividends.)

The biggest difference between the House and Senate proposals is that in addition to the Permanent Fund money to resolve this year’s deficit, the Senate has proposed a multibillion-dollar backdated shift of funds from the Alaska Permanent Fund to the Constitutional Budget Reserve, an idea the House had not considered.

The House proposed giving the Alaska Gasline Development Corporation the ability to accept up to $1 billion in investments for the proposed trans-Alaska natural gas pipeline; the Senate did not.

The state owes as much as $1 billion in incentive payments to oil and gas companies; the House proposed a $49 million payment on that debt. The Senate has proposed a $184 million payment. Neither body is considering a proposal by Gov. Bill Walker to borrow money to pay that debt.

Senate approval of its spending plan will send it to the House for consideration. The House is expected to reject the Senate’s ideas, an action that will lead to the opening of a conference committee to draft a compromise.


• Contact reporter James Brooks at jbrooks@juneauempire.com or 523-2258.


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