Proposed bill to access Constitutional Budget Reserve

The House Finance Committee introduced a bill May 26 that would put $6.4 billion from the Permanent Fund earnings reserve account into the Fund principal, putting it off limits to appropriation and triggering the means to draw from the Constitutional Budget Reserve with a simple majority vote to cover the fiscal year 2016 deficit.

House Bill 2002 would put $4.9 billion from the Permanent Fund earnings reserve account on June 30, and another $1.5 billion from the account would go into the principal in June 2016.

A draw from the Constitutional Budget Reserve, or CBR, is required to cover the 2016 fiscal year deficit that currently stands at $2.1 billion after Gov. Bill Walker signed a partially funded budget May 18. House minority Democrats have said any move to access the Fund’s earnings — which can be done with a majority vote — would put future Permanent Fund Dividend checks at risk.

Drawing from the CBR requires three-quarters of the both houses in the Legislature to approve, and Democrats are holding out for several demands including education funding and Medicaid expansion to vote for the draw.

However, the CBR only requires a three-quarters vote when other funding sources are available. By putting the earnings reserves into the principal of the Permanent Fund, that money would be inaccessible and allow the CBR to be drawn from without the minority Democrats’ support.

Deputy Revenue Commissioner Jerry Burnett wrote in a May 19 email to Rep. Les Gara, D-Anchorage, that this year’s appropriation for dividends won’t be at risk; but that is not the case for future years. The earnings reserve fund is what pays for the annual Permanent Fund Dividend checks.

As Burnett described it, dividends would not be affected as long as the 2016 fiscal year earnings are at or above the five-year earnings average.

“The official forecast from (the Alaska Permanent Fund Corp.) indicates that the transfer will not affect future dividends,” Burnett wrote. “However, as we have seen a number of times in the past actual earnings fall below projections in many years. There is a real chance that if the balance of the (earnings reserve account) is reduced below the amount needed for dividends that dividends will be reduced in that year.”

The Permanent Fund Corp.’s latest projections show statutory net income growing from $2.7 billion in fiscal year 2016 to $3.2 billion by 2020. For the 2015 fiscal year, $1.32 billion has already been appropriated for the PFD checks that will be distributed this October.

Burnett noted the 2009 fiscal year, when the net income of the fund was $2.5 billion in the red, and wrote that another such event could reduce or eliminate PFDs entirely if the money is moved.

The reserve account held nearly $5.8 billion in realized earnings on April 30. Another $1.3 billion in “unrealized appreciation on invested assets” brought the total earnings assigned for future appropriations to more than $7.1 billion, according to the latest Permanent Fund balance sheet.

There was $55.3 billion in total liabilities and assets in the Permanent Fund as of April 30.

Majority Democrat Reps. Bryce Edgmon and Neal Foster and Republican Reps. Jim Colver, Gabrielle LeDoux, Paul Seaton and Louise Stutes signed a May 20 letter to House Speaker Rep. Mike Chenault, R-Nikiski, urging him to negotiate with the minority to avoid tapping the reserve account. The six could eliminate the 26-member Majority’s voting power in the 40-seat House.

A stalemate over about $100 million of program funding the minority Democrats want added back into the budget has pushed legislators into the second special session of the year. It began May 21 after the House and Senate adjourned Gov. Bill Walker’s first special session and immediately began their own in Anchorage.

Heading the minority’s funding list is $48 million for the state Education Department.

Several sections of the bill contain language that reads, “if and only if” the super-majority approval to access the Constitutional Budget Reserve is not achieved will the Permanent Fund earnings reserves be transferred to the principal.

But in either outcome, the CBR would be accessed through the Democrats giving their votes to meet the three-quarter threshold, or by refusing and the earnings reserve account being converted to principal and opening up the CBR to a majority vote.

The Republican-led House Majority has been investigating ways to get around a three-quarter vote needed to approve a draw from the CBR savings account to fund the deficit.

Democrats have withheld from approving a CBR vote until a budget deal is reached and have accused the Majority of being unwilling to negotiate, noting that they are demanding the entire $100 million.

House Minority Leader Chris Tuck, D-Anchorage, told the Juneau Empire on May 26 he wasn’t surprised by the bill dropping because “it’s nothing new.”

“It doesn’t change anything,” he said by phone. “But there’s definitely got to be a change (in the way we’re negotiating). We definitely have to come up with a new way through this gridlock.”

He said he would meet with House Speaker Rep. Mike Chenault, R-Nikiski, to “explore ideas on how to improve the process. ... We don’t have much time and we don’t want to have pink slips go out (to state employees).”

“Hopefully we come up with something, even if it’s a coin toss,” he added jokingly.

Republicans in both chambers of the Legislature have said they are being “held hostage” and “held up” from funding the budget by the minority Democrats.

Walker has said his offers to mediate a deal were rejected.

‘Compromise’ bill introduced

A Republican budget compromise was introduced May 27 in the House Finance Committee that would fully fund the Base Student Allocation and 2.5 percent state employee wage increases, while at the same time cutting nearly $30 million across state government, was introduced to the House Finance Committee during a May 27 meeting.

The latest version of House Bill 2001, as described by committee co-chair Rep. Mark Neuman, R-Big Lake, would provide $16.5 million for the Education Department to bring the BSA up to the level prescribed in the education legislation passed last year. It would also put $29.7 million of general fund money towards union and non-union cost of living pay hikes.

On the flip side, it would require Gov. Bill Walker and his executive branch leadership team to cut $29.8 million from state agency budgets as they see fit.

“This has been a long time coming,” Neuman said.

The funding adds are contingent on getting House minority support for a Constitutional Budget Reserve draw 0with a three-quarters vote.

“I can’t help but feel I’m being leveraged a little in this budget,” said  Rep. Les Gara, D-Anchorage.

The agency cuts could just lead to the some of the workers in line for pay increases to be laid off.

Neuman said there have been discussions with the Walker administration as to where the agency cuts could come from.

Elwood Brehmer can be reached at [email protected].

Juneau Empire reporter Katie Moritz contributed to this story.

Updated: 
11/21/2016 - 8:14pm

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