Veto error preserves $4B Permanent Fund transfer

JUNEAU — Alaska Gov. Mike Dunleavy will not seek to block a $4 billion transfer of Alaska Permanent Fund earnings into the fund’s constitutionally protected principal.

Dunleavy attempted to veto the transfer last week, but because of a mistake in the veto process, the item was not crossed out in the final version of Alaska’s state budget.

Dunleavy’s office had said it was an error that should be corrected, but members of the Alaska House’s majority coalition decided against accepting his correction and sought a legal opinion to back their position. That opinion was expected July 6.

Corey Allen Young, a spokesperson for Dunleavy, told The Associated Press by email that the transfer would not “adversely affect” Dunleavy’s proposal to restructure the fund and place a dividend formula in the constitution calling for a 50/50 split between what is drawn for dividends and government.

In a response to a Daily News reporter’s questions about the Permanent Fund transfer, a Dunleavy spokesman did not answer those questions and instead referred to statements the governor’s office made to the Associated Press.

After being informed by the Daily News of Dunleavy’s decision, House Speaker Louise Stutes, R-Kodiak, said she thinks the governor’s decision was “a wise move.”

“That was part of the budget process. It ended up going through, even though it wasn’t intended,” she said.

Stutes believes the governor’s decision will improve relations with legislators who have been skeptical of the governor’s approach to handling the Permanent Fund.

“I think this will make things easier going forward,” she said.

The $81 billion Permanent Fund has two main branches: a $61 billion, constitutionally protected principal, and a $20 billion earnings account that may be spent with a simple majority vote of the Alaska Legislature and the assent of the governor.

Paulyn Swanson, a spokeswoman for the Alaska Permanent Fund Corp., said both the earnings reserve and principal “are fully invested together under the same asset allocation.” For fund managers, she said, the transfer involves only a change to accounting entries.

The main effect of the transfer is on the politics of the fund. Moving money from the earnings account into the principal protects it from easy spending.

An annual transfer from the Permanent Fund to the state treasury now accounts for two-thirds of the revenue that funds state services.

In the current fiscal year, that transfer is about $3.1 billion. Unrestricted oil revenue was estimated earlier this year at $1.3 billion, and other taxes are estimated at $355 million.

Dunleavy has proposed splitting the annual transfer in half, then using half for a constitutionally guaranteed Permanent Fund dividend while reserving the other half for state services.

Such a plan would create a significant deficit unless oil revenue and investment revenue rise significantly, or unless state lawmakers and the governor significantly cut spending or raise taxes.

Dunleavy has asked lawmakers to consider temporarily increasing the annual transfer, breaking a limit imposed in 2018, in order to pay for the larger dividend while legislators work out the other pieces of a long-term fiscal plan. The Fund has increased significantly in value this year, and it has enough to pay for Dunleavy’s proposed dividend.

But lawmakers have thus far been unwilling to withdraw that extra money because spending from the fund now reduces the amount of money that can be invested for future earnings.

Stutes leads the coalition majority in charge of the House of Representatives, and in a July 3 meeting, the coalition’s members decided against accepting the correction. Those who attended the meeting said the Legislature’s attorneys are drafting a legal opinion on the issue.

“We are going to let it stand,” said Rep. Ivy Spohnholz, D-Anchorage.

Many lawmakers are skeptical of Dunleavy’s approach, citing the way the state spent more than $16 billion from other savings accounts and failed to create a sustainable long-term fiscal plan.

The House majority coalition has supported efforts to limit the Legislature’s ability to spend from the Permanent Fund.

“Someone screwed up, and I believe it’s for the benefit of Alaskans,” said Rep. Andy Josephson, D-Anchorage.

07/07/2021 - 9:44am