Legislators consider multiple PFD proposals amid growing interest to solve the problem
March 22, 2023
A crowded field of proposals to address the annual debate over the amount of the Permanent Fund dividend became even more so on Friday as the Senate Finance Committee proposed a new formula for setting the payment.
In the first 60 days of the 2023 legislative session, lawmakers have introduced six different proposals to set a new dividend formula in either state law or the constitution.
Four other bills or resolutions would substantially affect the amount of money available for dividends without specifically setting a new formula.
Legislators say none are likely to pass this year, but any one of the ideas being discussed now could emerge as the leader next year to fix the problem that has bedeviled the Legislature and the state for seven years.
Bills that fail to pass in the first year of the two-year legislative session remain alive for consideration in the second half.
“I think we all realize that resolving the fiscal plan, resolving the Permanent Fund dividend, is crucial,” said Senate President Gary Stevens, of Kodiak. “We have an opportunity this year to do that with the cooperation of the governor and also the House. Hopefully we get to that point.”
Until 2016, the state relied on a dividend distribution formula from the 1980s, one that relied on the net income of the Alaska Permanent Fund, totally detached from the state’s budget situation.
When Permanent Fund earnings boomed in the 2010s, it created an odd disparity: The state was running huge budget deficits but paying large dividends.
Lawmakers worried about uncontrollable spending from the Permanent Fund weakening the savings account for future generations. In 2018, they voted to set up an annual, multibillion-dollar transfer from the Permanent Fund to the state treasury, effectively setting a withdrawal limit. The annual draw goes toward dividends and public services in the budget.
That transfer, worth more than $3 billion, is the state’s largest source of general-purpose revenue, more important than oil taxes to the state budget.
Most proposals for a new Permanent Fund dividend formula involve splitting that transfer in some way, reserving part for dividends and part for public services.
In 2021, Gov. Mike Dunleavy proposed a 50-50 split, half for dividends and half for services, though his current draft budget relies on the obsolete 1980s formula to set the dividend.
That 1980s’ formula, if it were used today, would consume about 71% percent of the earnings transfer in the fiscal year that begins July 1. Balancing the budget in that scenario would require steep budget cuts, spending from savings or abrupt tax increases. The governor proposed spending from savings to cover the gap; key lawmakers have said they’re unwilling to do that.
For the past seven years, ever since then-Gov. Bill Walker vetoed half of the payment called for under the old formula, legislators and governors have set the dividend by political negotiation during the budget process.
Disagreements over the proper size have dragged out the state’s annual budget process, sometimes taking the state to the brink of a government shutdown. Those same disagreements have stymied efforts to set a new formula.
In 2021, a bipartisan, bicameral group of legislators created the framework of a plan to resolve the debate.
They concluded that the Legislature should work toward a 50-50 split, a constitutionally guaranteed dividend, adopt a “a broad-based revenue measure” — a term frequently used as a euphemism for tax increases — work toward budget cuts and tighten the state’s spending cap.
“There is a financial or fiscal problem we’re trying to solve, and there’s a political problem sitting on top of it,” said Rep. Ben Carpenter, a Nikiski Republican. “The fiscal policy working group report is an attempt to solve both of those.”
In the House Ways and Means Committee, which Carpenter chairs, lawmakers have been discussing various concepts for a new formula, including one that would set the PFD at $1,000, and a bill from Ketchikan Rep. Dan Ortiz that would split the annual draw on Permanent Fund earnings with 25% for the PFD and 75% for services. That would produce a dividend this year of about $1,300.
Anchorage Sen. Bill Wielechowski has proposed one in a constitutional amendment for a 50-50 split, which would generate a PFD at about $2,700 per recipient this year but also would push the state into a budget deficit.
Several legislators and the House Ways and Means Committee have independently proposed constitutional amendments guaranteeing a dividend paid according to an as-yet-unwritten formula in state law. Putting the guarantee in the constitution would require legislators to follow the formula, whatever it is, though they could change the formula if it proves ineffective.
The House Ways and Means Committee also proposed an amendment guaranteeing a 50-50 dividend or a dividend paid using the 1980s’ formula, whichever is higher.
Changing attitudes and interests are contributing to a new picture and giving some lawmakers hope that a solution can be found. At the recent Anchorage Town Hall meeting, none of the attendees in a standing-room-only auditorium suggested that the dividend was a top priority.
“It’s really concerning where our state is headed, and people want to see something talked about other than just the size of the dividend,” said House Minority Leader Calvin Schrage, of Anchorage.
The Senate Finance Committee was scheduled to hold a hearing on its plan on Tuesday. The House Ways and Means Committee has not yet scheduled its next dividend-related hearing.
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