Committee scales back draw from permanent fund earnings

Rep. Paul Seaton, R-Homer, center, chairs the House Finance Committee shortly before it passed its version of the state budget in March 2017. On Tuesday, the committee voted to reduce the proposed draw from permanent fund earnings. (Photo by Skip Gray/360 North)

The House Finance Committee voted Tuesday to reduce the amount the state would draw from Alaska Permanent Fund earnings to pay for the state budget this year.

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The committee voted 6 to 4 to draw 4.75 percent of the fund’s market value. That’s a half percent less than the 5.25 percent Gov. Bill Walker proposed.

Homer Republican Rep. Paul Seaton said the lower percent of market value — or POMV — draw is more sustainable. He’s the committee’s co-chairman and caucuses with the mostly Democratic majority.

“The amount of the draw is not based on what our budget deficit is or those kinds of things,” Seaton said. “The amount of a POMV draw is based on the economics of an endowment.”

Endowments aim to grow faster than inflation. A consultant for the permanent fund corporation recently lowered the amount it projects the fund will grow in the future, from 6.95 percent to 6.5 percent.

Anchorage Republican Rep. Lance Pruitt said reducing the draw will increase the argument for an income tax, which he opposes.

“I would rather say, ‘Let’s look at where we can adjust appropriately and manage,’ which would be the earnings reserve right now, than to look at an income tax within the next couple of years,” Pruitt said.

The draw amount faces a vote in the full House. If the House passes it, it would go to the Senate for a vote.

The committee also changed the portion of the draw that would be devoted to permanent fund dividends. They set it at one-third of the draw, which would mean dividends of roughly $1,250 this year.

All members of the majority caucus who were present voted for the change. The members of the Republican minority caucus voted no. Majority-caucus independent Jason Grenn was absent.

The draw under the change would be $1.65 billion, compared with $1.91 billion Walker proposed. It would leave a $1.1 billion gap between what the state spends and what it raises. House majority members want to close this gap by drawing from the Constitutional Budget Reserve.