Referendum effort looms over plan to use Fund earnings
JUNEAU — Getting a bill passed to use Permanent Fund income to pay down Alaska’s multibillion-dollar budget deficits might be only half the battle.
Both houses of the Legislature have now passed a version of Gov. Bill Walker’s plan to restructure the Permanent Fund and reduce the amount available for dividends.
If Walker signs such a bill, one of Alaska’s political icons is prepping to repeal it.
“The greedy eyes are out,” former Republican Senate President Clem Tillion said in an interview. “If they change the law, we will change it back.”
Tillion, now 92, is getting financial commitments now to back a petition to repeal Senate Bill 26 on the assumption it will eventually pass, he said.
“We’re not all that well-organized but we are well-financed,” Tillion added.
He declined to specify how much he has raised, or who has committed, but said the group will form a nonprofit to manage the funds and the petition movement shortly after the governor signs the bill.
In December 2015, Walker proposed devoting a large chunk of the now $58 billion Permanent Fund’s annual investment earnings to help the State of Alaska pay down what was then a nearly $3.5 billion budget deficit.
Budget cuts, slightly increased oil prices and improved North Slope production levels have trimmed that deficit down to about $2.5 billion currently.
However, with the forecast calling for continued $2 billion-plus annual deficits with the state’s current fiscal structure still reliant almost entirely on oil taxes and savings, Walker and House and Senate leaders all agree employing the Permanent Fund’s earning power to pay for government services is a necessity.
The fight extending the legislative session now is over whether increased taxes or budget cuts should fill the last few hundred million dollars of deficit that the Permanent Fund can’t.
Tillion, who was in the state Senate in 1976 when the constitutional amendment establishing the Fund was approved, said Walker, current legislators and others who insist it was intended as a “rainy day” government fund are misguided in their view.
“Taxes belong to the government,” said Tillion, who was the lone vote against repealing the state income tax in 1980. “The Permanent Fund is the people’s money. We set up a system where the Legislature was not involved. This is the people’s Permanent Fund.”
Tillion, and fellow former Republican Senate President Rick Halford joined current Anchorage Democrat Sen. Bill Wielechowski last September in suing the Alaska Permanent Fund Corp. for following Walker’s directive and transferring only about half of the formula-driven dividend total for 2016.
Walker vetoed the PFD appropriation from more than $1.3 billion to $695 million — enough to pay $1,022 PFDs — as a sort of wake-up call to Alaskans and legislators about the need to revamp the state’s financials as savings wane.
Wielechowski argued in his suit that Walker’s veto was meaningless because the statute establishing the PFD directed the Permanent Fund Corp. to transfer the money to the dividend fund regardless of the governor’s action.
A Superior Court judge disagreed, and Wielechowski, Halford and Tillion have since appealed to the Alaska Supreme Court.
Halford said Tillion is a little premature in his efforts to repeal legislation that hasn’t yet passed, but said he supports the principle.
He also agrees that today’s politicians and the many Alaska business leaders and groups that support using the Fund for government are twisting its intention.
“The people who want to destroy use the word ‘restructure,’” Halford said in an interview.
He called Walker’s SB 26, dubbed the Permanent Fund Protection Act, “a scam,” and said business groups support it to avoid contributing more to state services themselves.
The three all emphasized that SB 26 does not include language to ensure the Fund’s constitutionally protected principle is inflation-proofed, but instead relies on organic growth to retain its real value. They contend that ensures the Fund will fail under the plan.
Halford and Tillion also pointed to the late 1990s and early 2000s when low oil price-induced budget deficits pushed many Alaska politicians to promote using the Fund’s earnings for government.
The state survived without reaching into the Fund then and can do so now, they contend.
The former legislators suggest Alaska fund its government with a broad-based tax and start to look more like other states in that regard instead of relying solely on oil revenue.
While Walker and many in the Legislature contend such a tax is not feasible to fill the large deficit, Tillion and Halford say they are trying to protect the people’s share of Alaska’s resource wealth from those in power who gain and hold their positions by spending money.
“There’s always a constituency to spend; it’s hard to save,” Halford said.
Those opposed to such a tax say it makes no sense for the state to pay a dividend with one hand while taxing with the other, but Halford, Tillion, Wielechowski and Wasilla Republican Sen. Mike Dunleavy insist the Permanent Fund, and particularly its annual dividend, are the people’s, not government’s.
One of Alaska’s most conservative legislators, Dunleavy opposes a broad-based personal tax, contending that reorganizing a much smaller state government and getting politics out of the way of the private sector will spur investment and solve the budget problem.
“Clem and Rick and Mike Dunleavy and I all have very different political philosophies on many things but this is what we agree on,” Wielechowski said.
They all also agree that repealing a Permanent Fund restructure bill won’t be difficult.
Getting a public referendum on a general election ballot — the current schedule would put a Fund bill-repeal on the August 2018 primary ballot — requires 30,000 signatures.
“We’ll get the 30,000,” Tillion said.
“I have no doubt that there will be a recall on any (Permanent Fund) bill,” Dunleavy added in an interview. “The vast majority of people in Alaska don’t want government meddling” with their money.
Dunleavy also said that while he didn’t join Wielechowski’s lawsuit, he supports it.
“When it comes to the Permanent Fund, the government of Alaska is merely a vehicle of convenience to take a check and get it to the people where it belongs,” he said.
A January poll of 7,000 Alaskans by the Senate Majority concluded 54 percent support using the Fund to fund government, but when posed with a ballot question of whether or not to lower their dividends, the senators all feel the public will vote to put the money in their own pockets.
The same poll found 68 percent of those surveyed prefer an income tax or sales tax over using Fund earnings for government when ranking the options.
Walker said he takes what Tillion and Halford are saying about the Fund very seriously.
“They’re both friends of mine and I don’t minimize what they say at all,” Walker said in an April 26 interview with the Journal.
The majority of people working on and watching the state’s budget battle recognize that “restructuring of Permanent Fund earnings is a cornerstone of any solution.”
And not having that makes the other pieces of a full fiscal plan that much more challenging, Walker said.
The governor said the threat of repealing a Fund bill makes passing a full fiscal plan this year all the more important. He is urging the Legislature to approve a broad-based tax and has proposed other industry tax increases along with a Permanent Fund measure and modest ongoing budget cuts, which is generally in line with the Democrat-led House Majority’s position. The strong Republican Senate majority insists a Fund bill and deeper cuts are all that is needed.
Walker said the Senate’s plan increases the likelihood a Fund referendum will make the 2018 primary ballot, but he has no idea if it will pass.
The governor added he has acknowledged the possibility of a repeal.
“I met with Clem Tillion a few weeks ago because he is a friend, and he certainly brought that up,” he said. “I don’t know why more people aren’t talking about it, but the way I’m addressing it is to continue to push for a full fiscal plan.”
Wielechowski said while campaigning last fall he heard an “overwhelming” consensus from his constituents to protect the dividend — the only issue of agreement.
“It confirmed what I thought,” Wielechowski said.
He added that he doesn’t know why politicians in Juneau aren’t talking much about the prospect of a Fund bill repeal. His best explanation is that the legislative session puts the people involved in a sort of “bubble” that insulates them from what’s happening in the rest of the state, Wielechowski said.
The Fund “is the future’s share of a large non-renewable resource that’s going to be gone,” Halford said, adding that, “The Permanent Fund is an odd creature in that it’s not regressive enough for hard-line conservatives and it’s not progressive enough for hard-line liberals. It’s equal.”
Wielechowski said he spent hundreds of hours researching the history of the Fund and its original intent.
“In ’76 the only thing people could agree on was, ‘let’s set (the money) aside so we don’t spend it all,’” he said. “It was a real politically fascinating discussion. I think the real concern was special interests could come in and get more money for themselves and the Fund was the best way to get the money to the people equally.”
Tillion noted the government can already access the earnings of the Fund with a simple majority vote.
“If you change the wording of the law you destroy the system. If the government just steals some money I’m not going to like it but that’s legal,” Tillion said.
He and Halford emphasized that when it comes down to a real fiscal crisis, Alaskans will be willing to pay for the services they want from their government through taxation.
“I was the lone vote against repealing the income tax (in 1980),” Tillion said. “If you don’t want an income tax do a sales tax or a payroll tax. I don’t care what, I don’t care if you cut government down to where there is no government; you don’t touch the people’s fund.”