State eyes Alaska Permanent Fund earnings draw without plan

The Alaska Permanent Fund Corp.’s exterior sign. (Photo by Skip Gray, 360 North)

Lawmakers have proposed drawing money from the Alaska Permanent Fund earnings to pay for state government for the first time. But as the Legislature focuses on preventing a government shutdown, it’s increasingly likely the draw won’t be based on any one plan. And that’s raising concerns with lawmakers, the fund’s leader and a bond-rating firm.

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Ever since a few years after the Permanent Fund was approved by voters in 1976, its earnings have been used for two purposes: to grow the fund, and for Permanent Fund dividends. But with the state bringing roughly 40 cents in taxes, fees and oil royalties for every dollar it spends, both the House and Senate have passed bills to draw from earnings to cover the gap.

But they haven’t agreed on a plan on how much to draw. And without a plan, they’ve proposed two very different amounts.

The House passed a budget last Thursday that would draw nearly $5 billion from fund earnings – 40 percent of the current $12.5 billion earnings account. The Senate would draw half that amount.

Eagle River Republican Sen. Anna MacKinnon said the House draw is too large, adding that it would “devastate revenue coming into our state, as well as the security of Alaska’s dividends.”

There are two big reasons why the House draw is larger. One is that the House included $800 million more for PFDs after it voted to restore full dividend checks last week. House members said the state should only cut PFDs from more than $2,000 to roughly half that amount under one condition: There are other new sources of money for the state, such as higher taxes on the oil and gas industry, or a broad-based tax.

Anchorage Republican Gabrielle LeDoux of the House majority explained her side’s position.

“One thing that we all were in agreement on was that a comprehensive fiscal plan should not be composed of simply reducing the Permanent Fund dividend,” LeDoux said. “It had to be comprehensive. That means everybody needed to be at the table, including the oil companies.”

So that’s one reason why they differ. The other difference is that the House included $1.7 billion for an account appropriated for future school budgets. The Legislature used to do this, before the budget gap grew in the past few years. The Senate didn’t include any draw for this future funding.

Alaska Permanent Fund Corp. chief executive officer Angela Rodell expressed concern earlier this month about a large draw from earnings without the Legislature passing a plan to use it.

“Part of my concern will be, if that doesn’t pass, … the unknown quality of how much money they’re going to use,” Rodell said. “Because under the current construct, they’re allowed to take and to appropriate as much as they need out of the earnings reserve account.”

Rodell noted that the Legislature has handled Permanent Fund earnings based on rules set by state law. At least that’s been true up until now.

“I’m hopeful that we’ll be able to get back to a more of a rules-based strategy, like we’ve had in the past, going forward,” Rodell said.

When Gov. Bill Walker included only the operating budget on his call for the second special session last week, he focused the Legislature’s attention on preventing a shutdown. But without the bills that would set up a plan for future Permanent Fund earnings draws, the Legislature may now spend earnings without a plan.

That has bond ratings firm Standard & Poor’s concerned. S&P issued a negative watch on Tuesday, saying that it would likely downgrade the state’s debt if the Legislature doesn’t pass a plan to balance the state’s future budgets. This downgrade could make it more expensive for the state to borrow in the future.

Walker has said he’ll add more topics for the Legislature to consider, such as a plan for Permanent Fund earnings, after lawmakers agree on a budget. The state government will shut down on July 1 if there’s no budget by then.