Anyone who’s been paying attention to State Capitol happenings knows the State of Alaska is facing an unprecedented fiscal crisis. The balance sheet just became more alarming with the preliminary spring revenue forecast predicting only $1.3 billion in general fund unrestricted revenue for the fiscal year ending June 30 — a $300,000 reduction from the autumn estimate — as oil per barrel prices remain lower than hoped for. In the fiscal year beginning July 1, revenue is now predicted to be $1.2 billion — $600,000 less than predicted last fall.
The new numbers mean only about a quarter of the State’s budget will be paid from money that is actively coming into the State’s coffers from traditional sources. The rest will have to come from our savings accounts, which fortunately were filled with billions of dollars in the not too distant past when oil prices were astronomically higher than they are today. But those savings accounts will only get us through a few more years, and then they will be gone. At that point, Alaska will be in an undesirable place, which creates the need to do something sooner rather than later to avert an impending disaster.
The Alaska Legislature is to be commended for taking a hard look at all elements of State government program spending, and making difficult choices about where to reduce expenditures. These cuts will impose hardships on Alaskans in a variety of ways, but they are an essential component to solving the fiscal crisis. But the incontrovertible reality is that no amount of cutting will close the shortfall, and new sources of revenue will have to be identified and implemented.
The single greatest resource that presents itself to help the State of Alaska continue functioning is the Permanent Fund. I was only 9 years old when Alaskan voters amended the State Constitution to create the Permanent Fund, but I am eternally grateful they chose to do so. I have personally benefited from the dividend, receiving the first check for $1,000 in 1982 to last year’s record-high payment of $2,072. I have received a total of $30,099.41 over 33 years — a significant sum of money. Yet, I am more than willing to forego such future generous payments if it means our state can continue to exist and not go completely bankrupt.
Fortunately, there are several realistic concepts actively being discussed in the Capitol about how Alaskans can use the Permanent Fund to avoid a catastrophic situation in the near future. Sen. Lesil McGuire, R-Anchorage, introduced Senate Bill 114, which would retain the dividend program but re-configure the way earnings are spent to reduce the deficit by almost half.
The present system deposits 30 percent of revenues generated by oil and gas development into the Permanent Fund, with half a percent going to the Public School Trust Fund, leaving 69.5 percent to flow into the general fund. The Alaska Constitution mandates that 25 percent of hydrocarbon royalties go into the Permanent Fund, and SB 114 would reduce the flow to that level with the remaining 74.5 percent directed to a Dividend Fund. By statute, the Dividend Fund would be unlinked from the Permanent Fund, and a floor of $1,000 would be set for annual dividends after this year’s is paid under the legacy formula. Going forward, 5 percent of Permanent Fund earnings would be deposited into the general fund, adding about $2 billion to pay for schools, roads, public safety, corrections, the Marine Highway System and the many other services Alaskans rely on in our daily lives.
There are other Permanent Fund related bills that may end up being the vehicle for progress. Rep. Charisse Millett, R-Anchorage, has sponsored House Bill 303, companion legislation to SB 114. Rep. Mike Hawker, R-Anchorage, has introduced House Bill 224, which would draw 4.5 percent of Permanent Fund earnings to fund State government, and set the dividend between $250 and $2,000 based on the balances of the Constitutional and Statutory Budget Reserve accounts. It would also mandate a balanced budget and proscribe any state income tax at any time dividends were being paid.
Gov. Bill Walker has put forward House Bill 245 and Senate Bill 128, designating them as the Alaska Permanent Fund Protection Act. This legislation would draw about 6 percent from the Permanent Fund to pay for governmental operations, and still maintain a dividend as well.
All of the foregoing bills approach how to use the Permanent Fund in slightly different ways, but they all share the key characteristic that they put an end to the unsustainable practice of doling out most Permanent Fund earnings to individual Alaskans, while still retaining a respectable dividend program.
The successful enactment of any of these Permanent Fund bills will not obviate the need to carefully scrutinize State expenditures and make prudent cuts where needed. It will also not end the debate about new revenue streams such as increased user fees, other resource taxes, or even a statewide personal income or sales tax. But progress on capping the dividend and redirecting a significant portion of the Permanent Fund’s earnings to pay for Alaska’s operating budget will make the problem smaller and more manageable, extending the life of our savings accounts while further debate occurs on the best way forward to fully pay for a right-sized annual operating budget.
• Benjamin Brown is a lifelong Alaskan, and an attorney living in Juneau. He serves on the Alaska Commercial Fisheries Entry Commission and is chairman of the Alaska State Council on the Arts.