‘Permission slip’ offered to use Fund earnings
Politicians are often accused of being childish, and the leaders of some of Alaska’s largest companies and interest groups are asking Alaskans to sign a “permission slip” allowing legislators to use Permanent Fund earnings as the basis for a solution to the state’s nearly $4 billion budget deficit.
Led by GCI co-founder and CEO Ron Duncan, the newly formed Alaska’s Future coalition has the singular mission of pushing the Legislature to finally use the $50 billion Permanent Fund for its original purpose: to pay for state operations when resource revenues are depleted.
Speaking during a Jan. 29 forum in Anchorage hosted by the policy think tank Commonwealth North, Duncan stressed that state government needs to solve its budget problem not only to save itself, but more importantly to save the private economy. He noted GCI’s capital budget, at $225 million this year, as one of many potential casualties of inaction by the Legislature this session.
GCI also employs more than 2,200 people in Alaska.
“If in June or July or August or September or whenever the legislators go home this year there is no solution in sight there is no way (GCI) can continue to make that investment because we will be looking out the front window and seeing an economic cataclysm within 18 months,” Duncan warned.
The list of Alaska’s Future co-chairs is short but powerful. It includes Duncan, NANA Development Corp. President Helvi Sandvik, Cook Inlet Region Inc. CEO Sophie Minich, former Democratic Gov. Tony Knowles, Alaska AFL-CIO President Vince Beltrami, former Administration Commissioner and founder of the Andrews Group management firm Eleanor Andrews and Fairbanks businessman Steve Frank.
Duncan said he took an interest in the daunting issue of closing the multi-billion dollar gap in late summer when he examined what taxes and spending cuts would do to his business. He quickly became consumed by the grim budget situation.
Alaska’s Future projects, much like many Alaska economists and general budget gurus have, that the state can maintain its current revenue system and live off its total savings of about $15 billion for three more years — give or take a year with market, oil price and spending fluctuations — before going broke.
Spreading a politically ambiguous mantra is Alaska’s Future’s job, according to Duncan. The group, that just formally launched Jan. 26, will employ a broad media campaign to spread the word, he said in an interview.
The home page of GCI’s website incorporated a scrolling Alaska’s Future ad Feb. 1.
“When we did our focus groups we learned that people believe that there’s a problem; they’re willing to make some personal contributions to solve it, but they don’t believe what their public officials are telling them.” Duncan said. “They do believe their employers; they believe their labor unions; they believe their teachers; they believe people in their community councils and their churches and to get this message out we need to get people who are willing to carry this message to their affinity groups.”
Alaska’s Future’s members list included the names of nearly 90 Alaska businesses, nonprofits and influential Alaskans on Feb. 1.
If the Legislature does not move to capture the investment earnings of the fund for government operations this session, Duncan predicted businesses statewide will pull back spending and trigger an “economic catastrophe” ultimately resulting in the loss of upwards of 10,000 private sector jobs.
Historically, the Permanent Fund’s realized earnings have primarily been reinvested in the fund and paid dividend checks to Alaska residents. The principle of the fund is off-limits to the Legislature per the state Constitution.
“If you like the current dividend formula you can keep it for three years,” Duncan said. “You’ll give up your economy in the process, but you can keep the dividend.”
Gov. Bill Walker has proposed shifting state resources to what is known as a “sovereign wealth fund,” which would pump revenue that had previously gone directly into the General Fund through the Permanent Fund, so the money can earn an investment return. The state would then draw from the earnings of the Permanent Fund each year to pay for operations.
Duncan credited Walker’s overall plan that includes further spending cuts and increased taxes for putting “a target on every special interest in the state,” but emphasized that Alaska’s Future is not endorsing any specific political plan.
Sen. Lesil McGuire, R-Anchorage, introduced her own proposal to revamp how the state uses the Permanent Fund last session in Senate Bill 114.
“We will cheer for either plan that gets adopted,” Duncan said in an interview.
He noted that maintaining a sustainable dividend is a related emphasis of the group.
Walker’s New Sustainable Alaska Plan would pay dividends with half of the state’s annual resource royalties, likely cutting the projected size of future dividends. McGuire’s bill would use a similar, but slightly more dividend-friendly formula.
While recent dividends have some of the largest the state has paid, it bears noting that future PFDs under the current system are tied to often-fickle financial markets, much the same way Alaska’s General Fund is coupled to a collapsed oil market.
SB 114 would sustainably pull roughly $2.5 billion from the fund’s Earnings Reserve account each year and the governor’s plan would put more money directly into the fund each year and draw about $3.2 billion annually.
Knowles said factions on either side of the political spectrum that demand more cuts to government spending or revenue generation — taxes in some form — before using the Permanent Fund are missing the point of the argument.
“The reason why the cornerstone of the Permanent Fund earnings comes first is because that gives you the time before you lose the crucial mass of your (savings) assets to make other tough decisions,” Knowles said. “It’s not a question of what you like the best, it’s a question of what’s the most effective.”
Taking the one big step of revamping how Alaska uses its wealth in the Permanent Fund would give the Legislature and Walker another two years to hash out the finer points of taxes and spending cuts.
The state cut about $800 million from its overall 2015 fiscal year budget; however, about half of the reduction came from one-time cuts in the capital budget. Walker’s plan includes additional but smaller cuts to spending over the next two fiscal years.
Sandvik said in an interview that she became comfortable with joining Alaska’s Future when she learned that keeping a dividend is part of the group’s mission. Originally from the Northwest Alaska village of Kiana, she said the checks every fall help rural families and struggling urban residents alike pay essential bills.
Using the Permanent Fund properly also allows the state to stabilize its finances without wholesale cuts to critical programs.
“You feel the pain a little bit sooner in rural Alaska when you start cutting state services,” Sandvik said.
Elwood Brehmer can be reached at [email protected].