Governor makes dividends key element of legislative session

The Legislature is set to convene next week in Juneau, with the Permanent Fund dividend perhaps the biggest issue lawmakers will confront.

Gov. Mike Dunleavy wants the state to pay individual Alaskans $1,900 this spring, a cash supplement to last year's dividend intended to help boost the pandemic-weakened economy.

The governor also wants to take more money out of the Permanent Fund earnings reserve to pay a $3,000-plus dividend this fall, calculated on a 40-year-old formula the Legislature has not followed since 2015 when a majority of lawmakers decided the state could not afford large PFDs, school funding and all the other public services included in the state budget.

The dividend has averaged $1,264 per Alaskan the past five years.

The extra spring dividend and the large fall payment will require legislative approval to withdraw an additional $3.2 billion from the Permanent Fund, almost 5% of its $70 billion market value as of the most recent financial statement Nov. 30.

That would be in addition to the $3 billion withdrawn in Fiscal Year 2021 and $3 billion withdrawal anticipated for Fiscal Year 2022 just to cover routine state spending.

All expenditures from the fund are subject to legislative appropriation.

The amount of the dividend, both in the short term and long term, and the need for a sustainable fiscal plan for the state "certainly will be the main focus of the session," Ketchikan Rep. Dan Ortiz said Monday.

Though many Alaskans certainly could use the extra money, said Ortiz, who also represents Wrangell, the question is what the state treasury can afford and the trade-offs in funding for other services.

"To the extent that it's part of figuring out the state's whole fiscal future," yes, the dividend debate will be the big issue this session, said Juneau Sen. Jesse Kiehl.

"A key piece of my proposal is the economic recovery payment," Dunleavy said of the spring supplemental PFD. "This would provide Alaskans with $1,900, driving $1.2 billion into the economy. Alaskans and the private sector need assistance now. Businesses that have been devastated, and Alaskans that are suffering, will benefit from immediate action by the Legislature placing money into the people's hands by March," the governor said.

For 2022 and beyond, Dunleavy proposes a 50-50 split between dividends and public services of whatever is withdrawn from the Permanent Fund each year. He is asking legislators to put the question before voters in an advisory ballot in a special election this spring, followed by a constitutional amendment on the November 2022 general election to lock it in.

A simple majority of legislators is required to call a special election, but a two-thirds majority of both the House and Senate is needed to put a constitutional amendment before the voters.

Though lawmakers agree the Permanent Fund should be protected, there is no clear majority in the Legislature in support of putting the dividend in the constitution.

If the governor's proposed 50-50 split goes forward, the PFD would be about $2,400 in 2022.

Dunleavy's plan for a total of $5,000 in dividends to Alaskans this year "certainly complicates the goal of having a sustainable, long-term fiscal plan," Ortiz said. What goes out in PFDs is not available for schools or other public services.

The Legislature in 2018 passed a law limiting annual withdrawals from the Permanent Fund earnings reserve for dividends and the state budget to no more than 5% of the fund's market value averaged over the past five years. The idea is that the fund will earn, on average, more than 5% a year on its investments, according to Permanent Fund Corp. financial projections. Withdrawing 5% while earning more than that will allow the fund to continue to grow.

The corporation estimates the fund will grow $10 billion, to $80 billion, by the end of Fiscal Year 2030, if the Legislature adheres to the 5% annual withdrawal limit.

In advocating for additional PFD payouts this year, Dunleavy has told Alaskans that the Permanent Fund earned $10 billion on its investments between the end of March and the start of December 2020.

"The question, can we afford this? The answer is yes," the governor said in a video released by his office in December.

However, the governor's video and other statements fail to acknowledge that before it earned $10 billion in eight months, the Permanent Fund lost $7 billion in the first three months of the year.

"(The) Legislature must weigh desire for stimulus against long-term cost," Alexei Painter, a fiscal analyst with the Legislative Finance Division, testified before the House Finance Committee on Jan. 8. "If the Legislature overdraws" the Permanent Fund without taking steps to balance the budget, the spending could rapidly replete the fund's earnings reserve, Painter said. "Each year we delay resolving the long-term deficit digs the hole deeper."

The state has run deficits more than half the past 30 years, essentially draining its most accessible savings account, the Constitutional Budget Reserve Fund, before turning to Permanent Fund earnings a few years ago to balance the budget and continue the annual PFDs.

Dunleavy's 10-year plan for the budget, assuming his 50-50 spilt between dividends and public services, shows a wide $1.2 billion gap in the Fiscal Year 2023 budget, which he said would be filled by "other revenue sources." He has provided no information on what "other sources" might include.

However, the governor is asking legislators to place a constitutional amendment on the 2022 ballot that would prohibit any new taxes without a vote of the public, effectively delaying that option of "other revenue sources."

A constitutional block on new taxes without a statewide vote of Alaskans would create a problem for balancing the budget in Fiscal Year 2023, Painter told House members. "Other revenue" for Fiscal Year 2023 "would need to be authorized this year, since it takes time to set up new taxes," he said.

 

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