Dunleavy calls for resolution of PFD, budget in special sessions

  • Gov. Mike Dunleavy has called two special sessions to deal with completing the 2022 budget and resolving longstanding debates over use of Permanent Fund Earnings. (Photo/Office of the Governor)

Gov. Mike Dunleavy unveiled his latest offer to settle the suite of omnipresent issues relating to the Permanent Fund that have mostly stalled work on all other fiscal matters backed by a large, bipartisan group of legislators on May 12, but it’s still unlikely the proposal will breeze through the Capitol.

At the heart of Dunleavy’s plan, which is packaged as a sweeping constitutional amendment to change the structure of the Permanent Fund and how it can be spent, is a call to equally split the revenue from the annual 5 percent of market value, or POMV, draw between money for government services and Permanent Fund dividends.

“Imagine a world where we’re not wrestling over the Permanent Fund anymore. Imagine a world where we’re not wrestling over the PFD anymore,” Dunleavy said. “We realize that for the people of Alaska we need to solve this now.”

As to the now, Dunleavy included an amended version of Senate Joint Resolution 6, the legislative vehicle for the Permanent Fund constitutional amendment, in his call for an immediate special session along with the operating budget and separate legislation setting this year’s PFD.

Dunleavy campaigned on the prospect of getting the Legislature to issue full, statutory PFDs after several years of the formula-driven amount being first cut by former Gov. Bill Walker and then by lawmakers concerned dividends approaching $3,000 per person they believed were unaffordable while the state was also running multibillion-dollar annual deficits.

After two years of unsuccessful attempts to get enough legislators on board to pass fully funded PFDs or reach resolution on any other aspects of a long-term budget fix, the governor’s hard line on the statutory formula PFD has faded.

Lawmakers with varying stated views on the structure of the fund and the long-term fate of the PFD commended Dunleavy for putting the first big pieces of a broad fiscal compromise into something they can work with.

Senate President Peter Micciche, R-Soldotna, said until there is a fiscal plan with a PFD resolution at the center of it, the Legislature will remain “stuck in neutral,” a sentiment echoed by Dunleavy and others.

“Until this matter is settled you cannot figure out how to fix the rest of the (budget) gap,” said Senate Majority Shelley Hughes, R-Palmer.

Sen. Lyman Hoffman, an influential rural Democrat from Bethel, has previously been sharply critical of many of the administration’s fiscal policies but said he’s worried that if the various issues pertaining to the Permanent Fund are not addressed soon “we’re going to be in a bigger mess than we’ve ever been in before” given it holds Alaska’s remaining spendable reserves.

SJR 6 would also enshrine the “50-50” PFD in the state constitution and roll the Earnings Reserve Account, which currently holds more than $14 billion in spendable cash, into the corpus of the fund to ultimately make for a more traditional endowment-style fund.

It would additionally roll the Power Cost Equalization endowment fund into the Permanent Fund and require the PCE program be funded each year out of the adjusted POMV.

While the concept of simplifying the fund’s structure through and subsequently limiting all appropriations from it to the annual POMV has gradually gained support in the Legislature, particularly among those most vocally opposed to ad-hoc draws from the fund, constitutionally guaranteeing a set annual PFD will be a much tougher sell amongst fiscally conservative legislators who fear the state could someday be forced to forgo essential services in order to pay PFDs.

At current revenue and budget levels with a traditional formula-driven PFD, the state has roughly a $2 billion deficit per year that would shrink but not be eliminated with a 50-50 POMV split.

However, some legislators once reluctant to constitutionally mandate dividends concede it is the only way — other than eliminating it — to actually settle the issue after the Supreme Court in 2017 unanimously confirmed lawmakers’ authority to bypass the statute when setting the budget each year.

Dunleavy is additionally proposing a one-time, $3 billion transfer from the ERA to the Constitutional Budget Reserve to act as a monetary bridge for the state until the Permanent Fund amendments and other deficit-reducing measures can take full effect.

Amending the Alaska Constitution requires supermajorities of 14 votes in the Senate and 27 in the House before going to a vote of the people, which Dunleavy noted takes the executive branch out of the debate once the resolution is submitted.

“This is really between the representatives of the people and the people themselves,” he said.

However, the statewide vote would not happen until 2022 at the earliest, putting the first fiscal impacts of any changes well after that.

Dunleavy also gave legislators the heads-up May 13 regarding a second special session in August to take up federal COVID-19 aid appropriations, his constitutional amendments for a tighter state spending cap and to mandate a public vote to approve new taxes, which have gained little traction in the Legislature, as well as “An act or acts relating to measures to increase state revenues,” the special session proclamation states.

Micciche said in a May 14 briefing with reporters that he strongly supports taking the divisive PFD issue off the table but he is “struggling” with the $3 billion transfer out of the Earnings Reserve on top of the annual POMV draw of approximately $3 billion primarily because it would likely have an opportunity-cost approaching $200 million in lost fund earnings each year.

Micciche also backs the plan for an August special session as it would give lawmakers time to talk to their constituents about the specifics of big policy changes but urged Dunleavy to go beyond his general acceptance of tax discussions to submitting legislation to fill the deficit left by a 50-50 POMV split.

“The governor’s plan is a good start but it leaves a $1 billion hole in perpetuity,” he said. “I’d like to know what their plans are for paying for a 50-50 PFD.”

Micciche contends a sales tax and adjustments to industry taxes, including oil taxes, will be necessary to fill the deficit under a 50-50 split.

“Are the people that support the PFD ready to pay for it? That means taxes,” he said.

Elwood Brehmer can be reached at [email protected].

Updated: 
05/19/2021 - 10:28am