Three pitches for closing state budget deficit with the Permanent Fund

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Gov. Bill Walker has proposed using the Permanent Fund earnings to pay for much of the state’s annual budget. But Walker isn’t alone in eyeing the $50 billion account. Lawmakers have introduced two other bills to pay for part of the budget using the fund.

Sen. Lesil McGuire, an Anchorage Republican, introduced Senate Bill 114 in April.

Sen. Lesil McGuire, R-Anchorage, in the Senate State affairs committee, Jan. 28, 2016, during discussion of SB 128. (Photo by Skip Gray/360 North)
Sen. Lesil McGuire, R-Anchorage, in the Senate State affairs committee, Jan. 28, 2016, during discussion of SB 128. (Photo by Skip Gray/360 North)

While Walker’s plan proposes to pay out a set amount – currently $3.3 billion – each year, McGuire’s would pay out 5 percent of the Permanent Fund’s market value.

The idea draws on models used by universities and other endowments throughout the world.

Walker also would combine oil and gas production taxes and state budget reserves with the Permanent Fund to pay for the annual budget.  McGuire’s bill doesn’t do that.

She said there’s room for compromise.

“Generally speaking, there’s already more cooperation than I’ve ever seen,” McGuire said. “And I think it’s the fact that people recognize how serious this problem. That we all have to put set aside  and focus around achieving a result.”

Both McGuire and Walker would use oil and other natural resource royalties — instead of the Permanent Fund — to pay for dividends.

McGuire’s bill would aim to provide at least a $1,000 dividend every year, although it doesn’t require it.

State Revenue Commissioner Randall Hoffbeck is skeptical of creating a floor for the PFD.

Randall Hoffbeck, Comm. Dept. of Revenue, governor’s press conference, January 22, 2016. (Photo by Skip Gray/360 North.)
Randall Hoffbeck, Comm. Dept. of Revenue, governor’s press conference, January 22, 2016. (Photo by Skip Gray/360 North.)

“Largely the dividend needs to be responsive to the state’s economic health, just like the state’s budget is, and so a floor would be a hard thing to achieve.” Hoffbeck said. “Impossible? No, but it would actually make the model a lot more difficult to achieve.”

Rep. Mike Hawker, another Anchorage Republican, wrote the other Permanent Fund bill that’s drawn attention, House Bill 224. It has a lot in common with McGuire’s bill. It would appropriate an annual percentage of the Permanent Fund for the budget.

But Hawker’s measure allows for much lower dividends, $250 or less in years where there’s a budget shortfall.

Hawker said Alaska shouldn’t pay out large dividend checks from royalties.

He cited a provision of the Alaska Statehood Act that says the state’s natural resources should benefit communities, not individuals.

“Direct, indiscriminate redistribution of that money, from the resource to people … that is pure socialism,” he said. “It’s confiscating wealth and redistributing it without any public purpose, and that’s just simply wrong.”

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Rep. Mike Hawker addresses the Alaska House of Representatives in March 2014. (Photo by Skip Gray/360 North)

Hawker said both he and the governor are trying to accomplish the same thing by drawing on the Permanent Fund: Create a more sustainable mechanism for funding the state budget.

But Hawker opposes combining state budget reserves with the Permanent Fund.

“My bill respects the Permanent Fund for what it was intended for when it was established,” Hawker said. “My bill respects the constitution, it respects the Statehood Act, and it utilizes our existing budget reserve funds for the purposes they were established. I don’t believe we need to re-engineer everything just to give it a different name, just to get the same outcomes.”

Another key difference between the governor’s and the legislators’ proposals is revenue. The legislators want to see at least $500 million in budget cuts, while Walker has proposed $100 million in cuts. And lawmakers are more willing to draw down budget reserves as a step toward a long-term budget solution.

Walker wants to permanently resolve the budget shortfall this year; McGuire says she’s hopeful progress will occur, even if it takes more than one year.

“The success of this session after having served 16 years is so much more critical than any other session I’ve ever been a part of,” she said. “But the success of this session rides on us making some concrete steps towards eliminating the volatility of Alaska’s budget.”

The Senate State Affairs Committee is scheduled to hold a hearing on McGuire’s bill on Thursday. Hawker’s bill has been referred to the House Finance Committee.