The Senate passed a bill on the Ides of March that draws $1.8 billion from the Permanent Fund earnings reserve for government services and sets the Permanent Fund dividend (PFD) at $1,000.
Gov. Bill Walker was in the gallery to watch the bill pass.
“The Senate showed great leadership today in passing the Permanent Fund Protection Act,” Walker said in a statement. “I thank members of the Senate for once again taking a significant step toward building a more stable future for Alaska.”
The bill initially draws 5.25 percent of the average market value (POMV) of the Permanent Fund over five years. Sen. Bert Stedman (R-Sitka) called it “eighth grade mathematics.”
Stedman said that while he would prefer a smaller POMV, “We need everybody in the state to pull together and chip in to help.”
“We are in a recession. Our business communities are crying out for certainty,” said Senate Finance Co-chair Anna MacKinnon (R-Eagle River). “This bill provides a foundation for that.”
Justifying the need for the bill, MacKinnon noted that the legislature has already cut 44 percent from its peak budget. Those cuts are not smoke and mirrors, she said.
SB 26 protects dividends and draws from the Permanent Fund as intended, MacKinnon told the Senate. It also keeps the corpus of the Fund growing in excess of inflation.
“The model shows that it does go up and it holds its value,” she said.
Sen. Gary Stevens (R-Kodiak) said the people who voted for the constitutional amendment establishing the Permanent Fund recognized it is a rainy day fund.
“The rainy day has happened,” Senate Resources Chair Cathy Giessel (R-Anchorage) declared, adding that the State can’t continue to rely on oil prices increasing.
MacKinnon said the State has spent $10 billion of its savings waiting.
“We’ve procrastinated for four years. We saw this coming,” said Senate Finance Co-chair Lyman Hoffman (D-Bethel).
We cannot afford, in my opinion, to procrastinate any further, to kick the can down the road, he continued.
The Senate debated SB 26 for over three hours before passing it, 13-7. Senators Mike Dunleavy (R-Wasilla), Shelley Hughes (R-Palmer), and David Wilson (R-Wasilla) joined minority members in opposition. Sen. Dennis Egan (D-Juneau) voted in favor.
Egan later voted “no” under reconsideration.
The bill now moves to the House, where the House Finance Committee has amended its own POMV bill (HB 115) to closer reflect the Senate’s.
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Without further action from the legislature, SB 26 leaves a deficit of about $800 million in FY 2018.
“This is the 95-percent solution,” Senate Majority Leader Peter Micciche (R-Soldotna) said in support.
Much of Wednesday’s opposition to the bill centered around the Senate’s plan to leave that fiscal gap this year.
Senate Minority Leader Berta Gardner (D-Anchorage) said it takes courage to bring forward a bill that cuts the PFD. She agreed that “the time has come” for a POMV.
“But a good plan has to include more than just cuts,” Gardner added, noting that Senate leaders do not anticipate new taxes.
“This is not a fiscal plan; this is simply one bill that doesn’t get us there,” agreed Sen. Tom Begich (D-Anchorage).
Until the Senate puts forward a full fiscal plan, Begich said he cannot support a POMV.
Sen. Bill Wielechowski (D-Anchorage) said SB 26 puts the sole burden of funding government on the backs of the people.
This is a crutch, he said. Once you put this in place, there is no incentive to take it back.
If this bill passes, we in the Senate are going to wash our hands and claim the problem is fixed, agreed Sen. Donny Olson (D-Golovin), who is advocating for an income tax.
On the other end of the spectrum, Dunleavy argued SB 26 will discourage the legislature from cutting further.
“We’ve always spent too much in this state,” said Dunleavy. “Government just keeps growing and growing.”
Dunleavy does not believe the Permanent Fund should be restructured. He has a bill (SB 84) that draws from the earnings reserve while preserving the current PFD calculation.
“Who do we want to win here: government, or the people?” he asked. “I think if this is the only step that’s taken, government wins.”
SB 26 does include a revenue limit that reduces the POMV draw on a dollar-for-dollar basis when oil revenue exceeds $1.2 billion. It also includes a $4.1 billion spending cap.
But both provisions would be statutory and could be ignored by the legislature, as the branch of government with the constitutional power of appropriation.
Sen. MacKinnon: “There Isn’t Time to Send This Question to the People”
In FY 2021, the POMV draw in SB 26 is reduced to five percent. At that point, 25 percent of the draw amount will go toward PFDs, which are expected to begin around $1,000 and grow slowly with the Fund balance.
Prior to debate, Wielechowski instead tried to amend the bill to sunset in FY 2021.
The sunset forces the legislature to continue to reevaluate a fiscal plan that’s acceptable to Alaskans, Wielechowski argued.
The bill already mandates that the legislature review the POMV every three years to make sure it is not damaging the corpus of the Fund.
Wielechowski’s amendment failed, 7-13. Dunleavy, Hughes, and Wilson joined minority members in support. Gardner joined the majority in opposition.
As Dunleavy attempted in committee, Wielechowski pushed Wednesday for a citizen advisory vote in September.
The only question on the ballot would be, “Do you approve of the passage by the Alaska State Legislature of a bill that changes the appropriation limit, changes the deposit into the Alaska permanent fund, changes the calculation of the permanent fund dividend, and changes the calculation of net income and the amount available for distribution from the earnings reserve account established under AS 37.13.145?”
Wielechowski said a September vote allows people to come back from Summer vacation.
But MacKinnon warned, “There isn’t time to send this question to the people without accessing reserves in significant ways.”
Wielechowski noted that the legislature does not need to wait to access the earnings reserve to fund the budget while the advisory vote is pending.
“You don’t need legislation to do that. You have the authority to do that now,” he said.
“The people understand we’re in a fiscal crisis,” Wielechowski continued. “We shouldn’t be afraid to hear what the people say.”
The advisory vote amendment failed with the same 7-13 vote tally.
No one likes to face stark reality or make unpopular choices, said Stevens, but he argued it is time for the legislature to take action.
“If the people don’t buy into this, I don’t know that it’s going to stand,” Wielechowski countered.
Later during debate, he noted that people have the option of calling a referendum on SB 26.
Senators Offer Amendments on Dividends
Much of the debate Wednesday centered on SB 26’s impact on PFDs.
Stedman pointed out that fixing the PFD at $1,000 for three years doesn’t take inflation into account, which will be “devastating” to Alaskans’ wealth.
Wielechowski said that taking over $1,000 from every Alaskan is the most regressive way the Senate could choose to reduce the deficit.
“It is probably the most successful government program in the history of the United States,” Wielechowski said of the PFD.
“The dividend is not an entitlement,” he said. “This is the people’s share of our oil.”
The Senate majority and the Walker Administration have highlighted that there is a choice between funding government services and fully-funding the PFD, but Wielechowski called this a false choice.
The budget is not an equitable way to distribute oil wealth because people with money and power will inevitably get more through that filter, Wielechowski asserted.
Dunleavy offered an amendment that would have restored the portion of the 2016 PFD vetoed by Walker.
Senate Rules Chair Kevin Meyer (R-Anchorage) moved to table Amendment 1, blocking debate. He pointed to the bills in Senate Finance.
“They should be vetted and reviewed properly by Senate Finance,” said Meyer.
All Senate majority members, including Dunleavy, voted to table the 2016 PFD amendment. Olson initially voted against the motion, but changed his vote, becoming the only minority member to vote to table.
Dunleavy later said he understood the amendment had a budgetary component and was therefore a long shot.
Wielechowski moved to change SB 26 back to existing statutory language that says the Alaska Permanent Fund Corporation “shall transfer” money to the dividend fund for distribution. In contrast, the bill says the legislature “may appropriate” the dividend amount.
“This is called the Permanent Fund Protection Act?!” Wielechowski exclaimed. “There’s absolutely no requirement for the legislature to pay a dividend in this bill,” he said.
“The people of Alaska deserve some certainty,” Wielechowski said.
Wielechowski’s amendment stems from Walker’s 2016 PFD veto. Wielechowski sued, arguing that the PFD transfer is not an appropriation subject to gubernatorial veto, but a superior court judge ruled otherwise.
An appeal is before the Alaska Supreme Court.
MacKinnon said Wednesday that the legislature should allow the case to run its course.
The amendment failed, 8-12. Again, Dunleavy, Hughes, and Wilson joined minority members in support.
Gardner said not replacing the “may” language with “shall” was the poison pill that prevented her from voting for SB 26.
“The people of Alaska are giving up a tremendous amount if this bill passes,” Wielechowski said.