Supreme Court hears arguments in PFD veto lawsuit

  • Alaska state Sen. Bill Wielechowski, D-Anchorage, argues in Superior Court on Nov. 17, 2016, that Gov. Bill Walker’s veto of half the 2016 Permanent Fund Dividend was illegal and should be overturned. Wielechowski and two former state senators lost that day but appealed and were heard June 20 at the Alaska Supreme Court. (Photo/File/AJOC)

Forty years to the day after the oil that generated the revenue to capitalize the Permanent Fund started flowing, the Alaska Supreme Court heard arguments over who controls distribution of the annual dividend payments of the Fund’s investment income.

Anchorage Democrat Sen. Bill Wielechowski said the Permanent Fund Dividend is the primary reason Alaska has the lowest income inequality in the nation.

“The PFD is unique; there’s nothing else like it in Alaska or the country for that matter,” he said to open his argument.

Wielechowski, an attorney by trade, represented himself and former state Sens. Clem Tillion and Rick Halford before the court.

The trio sued the Alaska Permanent Fund Corp. last September contending corporation officials violated state law when they adhered to Gov. Bill Walker’s partial veto of the 2016 dividend appropriation and transferred $695 million from the Permanent Fund Earnings Reserve to the Dividend Fund and not the full $1.36 billion that the formula in statute calls for and the Legislature approved.

It was the first time a governor had vetoed any of the PFD amount.

Tillion served in the Senate when the Permanent Fund was formed in 1976 and Halford was a state representative when the Legislature started the dividend program in 1982 and eventually served as Senate president.

Superior Court Judge William Morse shot down their case last November, and concluded that eliminating the governor’s veto authority over the PFD would provide the Legislature more power than the Alaska Constitution provides. They immediately appealed to the Supreme Court.

Walker made the bold move that some have called courageous and others have called stealing to send the message to Alaskans that their state is in a fiscal crisis and the status quo of government spending, and how it is paid for, is unsustainable, he said at the time and has continued to stress.

The 2016 PFD would have likely been the largest in history at about $2,100 per person; Walker’s veto cut it to $1,022 each.

The Alaska Constitution gives governors broad authority to make line-item vetoes in appropriations bills, and they regularly use it on budget bills. However, Walker also crossed out the language in the budget that notes the money transfer “is authorized under AS 37.13.145(b).” That is the statute that states the Permanent Fund Corp. “shall transfer” the formula-determined amount from the Earnings Reserve to the Dividend Fund for the annual payouts.

Before the high court, Wielechowski agreed with Walker that the state is in a fiscal crisis, but called it a “crisis of government.”

He also noted that the Legislature is free to appropriate from the Earnings Reserve of the Fund and change the law to reduce the dividend.

That said, Wielechowski argued that until the Legislature changes the law to do that — which Walker has proposed and has bipartisan support in the Legislature — the dividend statute is indicative of a dedicated fund.

It therefore mandates the Department of Revenue commissioner to calculate the lump sum dividend amount and the Permanent Fund Corp. to subsequently make the fund transfer, according to Wielechowski.

“By the governor striking this statute he’s requiring the Permanent Fund Corp. to come up with an incorrect number,” he contended.

Wielechowski said that after reviewing legislative records from when the Permanent Fund was formed by a voter-approved constitutional amendment in 1976 that, “All indications are that the Legislature intended to make this a dedicated fund.”

The Alaska Constitution prohibits the Legislature from dedicating money to a particular cause, but the amendment to establish the Permanent Fund and divert at least 25 percent of state resource royalty revenue is one exception.

Wielechowski stressed that the first three Dividend Fund transfers were made automatically, without language in the operating budget.

Following that, for 26 years until the fiscal year 2010 budget, the transfer was made with just the language in the budget directing the transfer, he said. There was no dollar figure specified for appropriation.

It all lends to the fact that the Dividend Fund to date has been treated by the Legislature as a dedicated fund, according to Wielechowski, and the budget line item and governor’s veto are therefore meaningless.

Attorney Sonja Kawasaki, who argued the plaintiffs’ 10-minute rebuttal, called putting the PFD in the budget an “accounting notation” of the Legislature.

Each side had 30 minutes to argue their case to the five Supreme Court justices.

State Assistant Attorney General Kathryn Vogel represented the Permanent Fund Corp.

Vogel said the amendment that formed the Permanent Fund mentions nothing of an annual citizen dividend or limits on the governor’s authority to veto appropriations.

Further, she said the dividend formula statute does not approve spending without an appropriation and while a dedication can exist in law and prohibit some forms of appropriation, it simply binds the use of those funds and does not create a “hall pass” to supersede the need for an annual appropriation.

“Fundamentally, there’s nothing about the dedicated fund clause not applying (to the Permanent Fund) that changes the normal course of appropriation,” Vogel argued.

Federal funds the state receives are dedicated to specific causes but are still appropriated in each budget, she noted.

Vogel continued to say that both sides in the case agree the PFD is a “statutory entitlement” that is not part of the constitutional amendment and therefore the governor’s veto authority holds.

She concluded by saying the “veto struck what was a number described by words” and contended ruling for the senators would ostensibly give the 1982 Legislature that approved the first dividend formula binding authority over the Legislature and governor today.

Chief Justice Craig Stowers wrapped up the argument hearing by thanking the audience for participating in such an important case but did not offer a timeline for a ruling.

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Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
06/21/2017 - 8:26pm

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