The House minority caucus is decrying a House majority budget amendment that taps the Permanent Fund. The amendment shuts the minority out of the budget, they say, and was drafted in a “shroud of darkness.”
The House Finance Committee approved a complicated budget amendment Tuesday that uses a percentage of the Permanent Fund, totaling $2.5 billion, to pay for government in Fiscal Year 2018.
$1.6 billion would pay for FY 2018 services, while the rest pays for Permanent Fund dividends (PFDs) and inflation-proofing the Permanent Fund.
Another payout of $1.7 billion would forward-fund education with a deposit in the Public Education Fund for FY 2017.
The Public Education Fund deposit obviates a $1.25 billion deposit from the General Fund in Gov. Bill Walker’s proposed FY 2018 budget.
“You wouldn’t need to do that because you now have $1.7 billion in there, and that would be more than sufficient to fully fund both pupil transportation and the foundation formula for [FY] ’18,” Legislative Finance Director David Teal explained Tuesday in a House Finance hearing.
Walker’s budget did not fully fund student transportation.
The amendment is a variation of Walker’s Permanent Fund Protection Act (PFPA), a 5.25 percent-of-market-value (POMV) draw from the Fund’s Earnings Reserve Account.
There are multiple POMV bills under consideration by the legislature, including one from the House majority caucus that is currently in House Finance.
Walker Administration officials, Legislative Finance experts, and Alaska Permanent Fund Corporation Executive Director Angela Rodell have said a structured draw from the Permanent Fund will protect the integrity of the Fund.
Walker’s budget proposed a POMV draw in FY 2017 and 2018, with the FY 2017 draw intended to repay the Constitutional Budget Reserve (CBR) savings account, instead of the Public Education Fund.
“I don’t think anybody in our caucus agreed with what the governor proposed as a budget,” Rep. Charisse Millett (R-Anchorage) said Thursday during a press conference.
“My feelings are that the Walker Administration’s taking the state in the wrong direction right now. I feel that we still have over $14 billion in reserves,” added Rep. Mark Neuman (R-Big Lake).
Neuman’s figure includes the $10 billion currently in the Permanent Fund Earnings Reserve Account and $4 billion from the Constitutional Budget Reserve (CBR), the State’s primary savings account.
Millett said tapping the Permanent Fund “should be a policy proposal, not a drafted-in-the-dark-of-night budget amendment that creates policy on its own in a budget bill.”
The POMV amendment was rolled into a budget committee substitute (CS) on Wednesday.
During a hearing, House Finance Co-chair Paul Seaton (R-Homer) said all budget amendments came from House Finance subcommittees and that he offered the POMV amendment as the lone member of the language subcommittee.
That drew laughter from House minority members.
“Be honest. You’re the only person making the decisions on this stuff. To try to hide something like that, that’s deceptive. That’s just flat out deceptive,” Rep. Lance Pruitt (R-Anchorage) said during the press conference.
Previous chairs of the operating budget were less open, Seaton argued Wednesday.
“In the past, all of those [language amendments] were rolled into the CS and were never seen, were never voted upon by the House Finance Committee. This time, every single amendment was proposed and was discussed and was voted upon by this full committee,” Seaton told Pruitt.
The POMV amendment passed House Finance on caucus lines.
Rep. Tammie Wilson (R-North Pole) acknowledged that the House majority was allowed to include the amendment, but said it gave the public little time to understand it before the start of public testimony.
“There’s no way I can support this, not just because it’s insane, in my opinion; but it’s just not fair to the public to expect to give them two minutes to testify on something that’s taken us several hours to even try to wrap our heads around,” Wilson said during debate on the amendment.
Public testimony on the budget began Thursday.
It continues Friday with Anchorage, Sitka, Petersburg, Delta Junction, Unalaska, Glennallen, Tok, and off-net sites. Bethel, Cordova, Kotzebue, Nome, Valdez, Wrangell, and Juneau will testify Saturday.
POMV Amendment Closes Deficit, Hurts Minority’s Bargaining Power
Depositing the Permanent Fund money in the Public Education Fund has an additional impact that Teal explained.
“The deficit we have now is roughly $2.9 billion,” he told House Finance. “You’re getting $1.6 [billion] from the earnings reserve as a payout. That would reduce your deficit. In addition, you’re not paying out $1.3 billion into the Public Education Fund in [FY] ’18. So, between the $1.6 billion payout and the $1.3 billion that you don’t put into the Public Education Fund, you’ve now eliminated your FY ’18 deficit.”
Technically balancing the budget means a three-quarter supermajority vote will not be needed to access the CBR to fill the deficit.
Therefore, the House majority does not need any votes from the minority caucus to pass the budget out of the House.
In 2015, the Republican-controlled House majority proposed moving $4.9 billion from the earnings reserve of the Permanent Fund into the Fund’s constitutionally-protected corpus. That would have shifted enough available savings to avoid a three-quarter CBR vote.
The remaining Musk Oxen joined House Democrats this year to form a new majority.
Some of the authors of the 2015 plan cried foul this week, saying the POMV amendment is targeting the new minority’s influence.
“I’m not quite sure if it’s not a ploy to make it so that the majority doesn’t have to negotiate with the minority in the House,” Neuman reacted when the POMV amendment was introduced. “To me, that’s pretty highly suspect.”
“It was a little upsetting yesterday when the House Democrats took away our opportunity to weigh in on the budget by removing the three-quarter vote,” Millett told reporters Thursday. “It was unfortunate for a group that says they’re all about openness and transparency. We saw yesterday clearly they are not.”
Pruitt said the difference between 2015 and the recent POMV amendment is that in 2015, the then-majority was trying to prevent a government shutdown during the minority’s intransigence. This year, the minority is being cut out before negotiations even fully begin, he argued.
“What you’ve also seen in the last couple days is a usurpation of the process in an attempt to get over 300,000 people’s voices quieted,” Pruitt said, referring to the House minority’s constituents.
“What I feel the Democrats basically did is they used politics, not to promote policy; but to get around policy,” said Rep. Jennifer Johnston (R-Anchorage).
“I think it’s going to weaken the system as a whole because they don’t have the voice of all the legislators in this budget,” added Neuman.
If the POMV amendment survives House Finance and is adopted as part of the House budget, it will probably not be adopted by the Senate, making it an item subject to a budget conference committee.
End-of-session negotiations could result in the amendment’s removal from the budget, bringing the CBR back into play, as well as the House minority’s power to control access to that account.
“We’ve got friends over in the Senate. There’s a whole other body that this has got to go through,” Pruitt warned majority members. “It may seem like a win right now, but it always comes back on you. So this was kind of a dangerous move, I think.”
House Minority Says FY 2018 Budget Larger, But Devil’s in the Details
Millett said that the House majority is growing the budget when it should be cutting.
“I was a little disappointed that Rep. Seaton, before he looks at doing anything to reduce the size of government, he’s going to be taking money from my constituents’ pockets,” said Millett.
Of the $2.5 billion in the amendment’s FY 2018 draw, nearly $800 million is set aside for PFDs. The individual PFD amount would be about $1,150.
This is more than the $1,000 Walker and the Senate majority have proposed, but about half of what the current statutory calculation would yield.
“For me, it indicates that the new Democrat majority is happy with the size of government and they’re willing to leave the level where it’s at and take money from your pocket and my pocket, and I’m not comfortable with that. I think that’s the easy, lazy way out,” said Millett.
“When your revenue falls 60 percent, your budget should fall,” she declared. “I have not seen that happen.”
Since 2013, the State has cut the budget by $3.5 billion, or 44 percent. Walker proposed another $30 million cut this year, with $121 million cut from agency operations, the day-to-day cost of government.
“If you look at what came out of House Finance yesterday, they’re actually increasing the budget,” Millett said Thursday.
It’s true. The House budget CS represents an $84 million increase in total spending over FY 2017.
However, that increase is entirely due to $120 million of Permanent Fund inflation-proofing included in the POMV amendment.
Current statute recommends that the legislature annually move an amount that accounts for inflation from the Permanent Fund earnings reserve into the corpus. This allows the protected part of the Fund to grow and retain its investment strength.
The legislature has not inflation-proofed the Fund for the last two years. This has appeared as a budget cut. Yet continued failure to inflation-proof will jeopardize the value of the Permanent Fund.
Though the House budget CS increases Permanent Fund appropriations, it cuts agency operations by $118 million. The only department to show real growth is Education & Early Development (DEED).
The CS also includes $100 million in cuts for school construction and oil tax credits, cuts proposed by Seaton on the same day he offered the POMV amendment.
House minority members did not mention those cuts Thursday.
They did say they plan to offer cuts via floor amendments.
House minority members who sit on House Finance will also have a chance to amend the budget after public testimony.
However it happens, Pruitt vowed that the POMV amendment will not survive the budget process.
“It’s not going to happen,” he said. “It’s just not going to happen.”
Thursday was Day 45 of the 90-day session.