Senate passes bill cutting Permanent Fund dividends in half

Permanent Fund dividends would be cut in half under a bill the Senate passed Monday. It’s part of a plan to change the basis for funding state government from a dependence on oil revenues toward Permanent Fund earnings. But the plan is controversial.

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Bill supporter Anchorage Republican Senator Lesil McGuire said the bill would make Alaskans more invested in the state budget, while providing a sounder, more predictable basis for funding government services.

Sen. Lesil McGuire, R-Anchorage, explains Senate Bill 114 to the Senate Finance Committee, March 22, 2016. The bill reflects her vision for how the Permanent Fund and other state financial accounts should be managed. (Photo by Skip Gray/360 North)
Sen. Lesil McGuire, R-Anchorage, explains Senate Bill 114 to the Senate Finance Committee, March 22, 2016. The bill reflects her vision for how the Permanent Fund and other state financial accounts should be managed. (Photo by Skip Gray/360 North)

“This bill is the most important thing that I will do in my 16 years and I would dare to say anyone here in this room will do in their political career,” McGuire said. “It is the main step toward stabilizing Alaska’s future.”

The bill would draw as much as five and a quarter percent of the Permanent Fund from the fund’s earnings account each year. And it would cut the PFD from its current level of roughly $2,000 to $1,000. After three years, the dividend checks would be based on a combination of 20% of oil royalties and 1.5% of the Permanent Fund. Eagle River Republican Senator Anna MacKinnon supported the bill. She said it’s a financially responsible way to provide necessary services. Without changes, the state runs the risk of exhausting its savings – imperiling all dividends – in a few years.

“The bill before you maintains our savings account,” MacKinnon said. “It increases the longevity of how long those savings accounts can be around for future generations. It secures the corpus of the Permanent Fund.”

Sen. Bill Wielechowski fields a question from a reporter during a Senate Minority press availability, Jan. 28, 2015. (Photo by Skip Gray, 360 North)
Sen. Bill Wielechowski fields a question from a reporter during a Senate Minority press availability, Jan. 28, 2015. (Photo by Skip Gray, 360 North)

Anchorage Democratic Senator Bill Wielechowski cites several reasons for opposing the bill. He says he’s promised voters he’d protect their dividends, and he says the change isn’t necessary.

“People say, ‘Well, it’s not really a tax. It’s just cutting the dividend.’ It’s semantics in my opinion,” Wielechowski said. “And I think if you were to ask your constituents, and I know if I ask my constituents – all they know is, it’s a thousand dollars out of their pockets.”

Wasilla Republican Senator Mike Dunleavy says he opposed the bill because the state could make deeper cuts to the budget next year, but the pressure to make those cuts could be reduced if the bill becomes law.

“There’s no doubt that the math would indicate over the long term that we’re going to have to do something structurally,” Dunleavy said. “I just think we’re probably a year or two premature on this.”

The Senate voted 14 to five to pass the bill.

Governor Bill Walker applauded the vote. But he noted a concern about whether the impact of the budget changes are balanced. He’s proposed other measures to raise revenue, including introducing a personal income tax. While the PFD changes would primarily effect middle- and low-income Alaskans, the income tax would fall most heavily on higher-income residents.

The House version of the Permanent Fund bill is up for a hearing in the House Finance Committee on Monday.

Correction: An earlier version of this story misidentified Sen. Lesil McGuire as the sponsor of a bill restructuring Permanent Fund earnings. McGuire backed key provisions that were added to the bill and led support for it during the floor debate, but was not the sponsor.