Governor Bill Walker will propose a complete overhaul of the way Alaska uses the Permanent Fund when he releases his budget later this year. The plan would turn the state’s various savings accounts into a kind of endowment, using their earnings to fund state operations.
The governor’s goal is to shift the state from a reliance on oil revenue to a reliance on the earnings of its massive reserve funds, an idea the administration is comparing to the sovereign wealth funds used in oil-dependent states like Norway.
The administration held a noon briefing Wednesday, Oct. 28 in Juneau’s Centennial Hall for lawmakers who are gathered for a special session on the Alaska LNG gas line.
Speaking with reporters Wednesday morning, Attorney General Craig Richards said the goal is to stabilize state finances in the face of wild swings in oil prices.
“You want to get to a point where you have a stable economy that doesn’t ride the boom and bust cycles of the oil markets,” he said.
Gov. Walker appointed Richards to the Alaska Permanent Fund Corp. board earlier this week.
Currently the state’s budget for day-to-day operations relies largely on revenue from oil taxes, and the drop in oil prices has created a deficit of about $3 billion.
The governor’s plan would send oil taxes into the Permanent Fund, instead. His team then believes the state can pull about $3.3 billion a year from the fund’s earnings reserve, without depleting the fund itself.
The plan would allow the state to avoid drastic cuts in services, though in its current form it would also likely reduce PFD checks.
Richards stressed that the changes should be made as soon as possible — preferably during the regular legislative session this spring.
“If we take a couple of years and do this, we’re burning down our assets. We’re spending the money we need to make the sovereign wealth model work,” he said. “So if we don’t get this in place pretty quickly, it’s going to have to look different and a lot less effective.”
The proposal would also change the way dividends are distributed — instead of coming out of Permanent Fund earnings, dividends would be pulled from oil and gas royalties. Richards estimated that under this system, next year’s PFD would be about $1,000.
Richards said the changes could be accomplished through legislation, without the need for any constitutional amendments.
Many lawmakers are open to the idea.
Senate President Kevin Meyer, an Anchorage Republican, called the proposal “a good first start.” He said it resembles a Senate bill introduced this spring, though the Senate version would devote more revenue to dividends.
“Absolutely. This concept, one of our bills, a combination of his concept and our Senate Bill 114, is very doable,” Meyer said. “As long as we get cooperation from the governor, the minority in getting the budget reductions that we want to get.”
That could be a big “if.” Meyer said he is seeking another $500-million in cuts before the legislature takes up the governor’s proposal, or any other changes to revenue. That number is higher than what the governor or minority democrats have said they can accept.
Minority leader Chris Tuck, an Anchorage Democrat, said in general he likes the “endowment” concept, but needs more details on this particular plan. And then, he says, the governor has to convince Alaskans.
“The concern of course is, is using the permanent fund to pay for government services, which may not be that popular,” he said.
The administration stressed that the plan right now is in draft form — and subject to revision. The final version will be included in the governor’s formal budget proposal this winter.
That will then go to lawmakers for debate during the legislative session starting in January.