FAIRBANKS — The Alaska Legislature approved a compromise bill Tuesday that could shrink permanent fund dividends to help the government close a multi-billion dollar budget gap.
Senate Bill 26, originally created at the request of the governor, also creates rules on how much the Legislature is allowed to draw from the earnings of the $65 billion fund to spend on government versus the PFD each year.
Senate Bill 26 includes a plan to limit draws on the fund’s earnings based on the current market value of the fund, often referred to as percent of market value. For the next three years, the legislature can draw up to 5.25 percent of the fund’s market value for permanent fund dividends and funding the government. After three years, that draw will be dropped to 5 percent.
North Pole Republican Sen. John Coghill said he is pleased with the setup.
“I like that it sets up the POMV, which is an endowment model for the earnings reserve,” Coghill said Tuesday. “It sets rules for how we use that reserve and limits how much we can take from it, which protects it from being overdrawn, and describes what can be used for dividends and government. It doesn’t answer the question, but it sets up the question. Everyone said it’s a step in the right direction.”
The POMV draw in fiscal 2019 will generate about $2.7 billion, which will be split between paying the 2018 dividend, set at $1,600, and paying for government services.
The dividend was originally expected to be $2,700 this year according to the market value of the permanent fund, but was dropped to fit within the state’s budgeting constraints. The dividend has been lower than market value for the past two years.
Senate President Pete Kelly, R-Fairbanks, added that the legislation was an important step in protecting the dividend.
“We knew we had to act when oil prices crashed and we lost half of the state’s revenue,” Kelly said. “In 2016, it was obvious the big spenders would like to come after the dividend and, without SB 26, the sky would be the limit.”
Fairbanks Democratic Rep. Adam Wool said finding alternative revenue for the state was vital but that he supported the bill as a way to protect the permanent fund.
“We’re in a new world, where we spend more than we bring in. We’ve been doing that for several years,” Wool said. “We’ve been spending out of one piggy bank and now that that’s essentially gone, now we get to go to a bigger piggy bank. We have to be very careful, so we put safeguards in capping the draw.”
Wool said he believed, given the state’s current fiscal crisis, this was the most logical step forward.
“I think it’s the most responsible way to proceed in that we don’t have money to fund public services and revenue is not there,” Wool said. “Maybe this will highlight the revenue gap when we try to balance the budget next year.”
Gov. Bill Walker called the bill a historic policy.
“This landmark legislation is a major step toward ensuring that the fund — and the dividend program — will remain permanent,” Walker said in a statement. “By stabilizing revenues, we secure permanent fund dividends for our children and grandchildren, and ensure services provided by the Alaska State Troopers, road maintenance crews and teachers will continue for generations.”
The bill was referred from the conference committee Tuesday morning and then approved by the Senate 13-6 and by the House 23-17. The legislation will now be sent to Walker for his signature.
Of the Fairbanks area delegation, Sens. Click Bishop, R-Fairbanks; John Coghill, R-North Pole; and Kelly all voted in favor of the bill, as did Reps. David Guttenberg, D-Fairbanks; Steve Thompson, R-Fairbanks; and Wool. Fairbanks Democratic Rep. Scott Kawasaki and North Pole Republican Rep. Tammie Wilson voted against the bill.
“It didn’t address any of the dividend issues or any of the spending issues that we’ve been discussing all session,” Wilson said.
Kawasaki said potentially cutting the dividend in future years is actually hurting the state’s economy.
“I feel like this is the beginning of the end for the permanent fund dividend. The fiscal note said that next years dividend would be $1,000, next year would be smaller. That was what the original fiscal note said and I kind of felt like that was their aim all along, and I just couldn’t stand for it,” Kawasaki said.
Contact staff writer Erin Granger at 459-7544. Follow her on Twitter: @FDNMPolitics.
