The full Alaska Senate will on Monday consider a proposal to erase much of Alaska’s multibillion-dollar budget deficit. In the process, the proposal would effectively halve the Permanent Fund Dividend.
“There’s a general consensus that something needs to be done, and it needs to be done here and now,” Revenue Commissioner Randy Hoffbeck told senators Friday morning.
The Senate Finance Committee has approved Senate Bill 26, which — if approved by the full Senate, House and Gov. Bill Walker — would take 5.25 percent of the average investment earnings of the Permanent Fund for dividends and government services.
Three-quarters of the average would pay for government services, helping erase a multibillion-dollar budget deficit caused by low oil prices.
The remaining one-quarter would be reserved for dividends and would result in a dividend of $1,000 per person, a figure that would gradually rise over time.
“Before us is one way —there are many — to close this fiscal gap,” said Sen. Anna MacKinnon, R-Anchorage and co-chairwoman of the Senate Finance Committee, shortly before the committee’s final action.
Lawmakers in the House and Senate have proposed a variety of ideas — new taxes, extensive spending cuts — to fix a state deficit of about $3 billion, but experts testified this year and last that no other single item will fix more of the deficit without having a big impact on ordinary Alaskans.
According to an analysis by the Legislative Finance Division, the Legislature’s nonpartisan analysis group, SB 26 would reduce the state deficit from $2.7 billion to $820 million.
At the same time, it would reduce this year’s expected dividends from $2,214 per person to $1,000 per person.
Sen. Lyman Hoffman, D-Bethel and co-chairman of the finance committee, said that decline is unpleasant but necessary. If the Senate takes no action, it might have to turn to the state’s dividend-paying account to balance the budget.
“The people of Alaska could potentially have no dividend, and that gives me great concern,” he said.
Sen. Mike Dunleavy, R-Wasilla, offered the strongest words against the proposal and called for a constitutional amendment to cap state spending.
Included within SB 26 is a largely ineffective limit on state spending. Under Alaska’s constitution, a Legislature cannot bind a future Legislature through statute. Effectively capping state spending would require a constitutional amendment.
Under other provisions in the bill, the Permanent Fund draw would drop to 5 percent of the average earnings after three years. Lawmakers also would be required to re-examine the plan at that time.
Sen. Natasha Von Imhof, R-Anchorage, said she feels a 5.25 percent draw is high, but was reassured by the drop to 5 percent after three years.
If oil prices suddenly spike, the Permanent Fund draw would be reduced if oil revenue tops a particular threshold. For every dollar of oil revenue above that threshold, Permanent Fund spending would drop.
The bill leaves the constitutionally protected Permanent Fund principal untouched; only the money earned by investing that principal is spent under SB 26.
The bill does not entirely fix the state deficit, and Hoffbeck told senators that he believes the Legislature’s work will not be done, even if this bill is signed into law.
“I believe it would be premature to say this was it,” he said.
In the House, lawmakers are considering an income tax and cuts to the state’s oil and gas drilling subsidies. In the Senate, the same finance committee that approved SB 26 is also planning hundreds of millions in budget cuts.
When the full Senate begins debate Monday on SB 26, the end result will remain weeks — if not months — away.
Contact reporter James Brooks at james.k.brooks@juneauempire.com or call 419-7732.
