Proposed constitutional amendment would protect dividends, sort of

Rep. Andy Josephson, D-Anchorage; Rep. Paul Seaton, R-Homer; Rep. Chris Tuck, D-Anchorage; and Rep. Jonathan Kreiss-Tomkins, D-Sitka, attend a press availability Tuesday. They discussed a proposed constitutional amendment regarding permanent fund dividends. (Photo by Andrew Kitchenman/KTOO)

Enshrining permanent fund dividends in the state constitution is being considered by the state House. But how to do it – and whether an amendment to do it would accomplish what its sponsors say it would – isn’t clear.

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For the part of the state budget the Legislature directly controls, Alaska’s government currently spends more than twice as much as it receives in revenue. To cover the remaining $2.5 billion gap, the Legislature is preparing to draw money from Alaska Permanent Fund earnings for the first time.

Until now, the earnings have only been spent on dividends and a few small programs. Most lawmakers now say that most of the gap must be closed with permanent fund earnings.

Homer Republican Rep. Paul Seaton said he’s concerned that in the future, if there is a deficit, members of the Republican-led Senate majority would eliminate the dividend before approving taxes. Seaton would prefer that taxes close the gap. He sees the proposed amendment as a way of preserving the dividend.

“We want to make sure that there’s a strong dividend, a stable dividend, into the future generations, and that’s why we’re taking this action,” Seaton said.

Majority-caucus senators have said that spending cuts and rising oil revenue should close the gap. But they’ve also proposed a smaller dividend than the House, $1,000 instead of $1,250.

Concern over the dividend’s future led House members to propose a constitutional amendment through House Joint Resolution 23.

The draft amendment would each year set aside 4.75 percent of the average value of the permanent fund over the previous five years. Two thirds, currently $1.65 billion, could be used for the government. One third could be spent on dividends.

That division rankled members of the public who testified on Monday. At the Mat-Su Legislative Information Office, Joel Sigman reflected that frustration.

“You need to quit taking from the people,” Sigman said. “If they can’t budget what they already got, they need to live on $8,500 a year like I do, and see how long they got their stuff and see if they got a home and stuff when they’re done.”

Ed Martin of Cooper Landing told legislators the state should sell public land to raise money.

“You people don’t have the spirit of Alaska in you like the pioneers did,” Martin said. “You need to get it back and I don’t know how to shake it to you.”

House members originally proposed that the amendment guarantee that a third of the draw “shall” be devoted to PFDs. On the advice of the nonpartisan legislative legal Director Doug Gardner, the amendment was revised to say the Legislature “may” appropriate up to a third for PFDs.

That’s because amendments can only change one part of the constitution. Since the proposed amendment would already change the permanent fund, it couldn’t also change how the legislature appropriates money.

Gardner told lawmakers they could use the word “shall” instead of “may,” but it would likely lose a court challenge.

“You’ve known me for a while, and I’m a balls-and-strikes kind of person,” Gardner said. “And I will say it’s very likely you would lose that case.”

Gardner said that if the Legislature wants to make multiple changes through amendments, it could do that through a constitutional convention.

Anchorage Democratic Rep. Chris Tuck said the amendment would provide stronger protection to the PFD than the current law.

“If it’s unconstitutional to put ‘shall’ language in there, we’ll look at that a little bit further,” Tuck said. “But I will tell you this: ‘May’ language in the constitution throws a lot more weight than a ‘shall’ language in statute. So, it’s still way better than what we have right now in protecting the permanent fund dividend.”

Even if all 22 members of the House majority voted for the amendment, five minority Republicans would have to approve it. That may be a challenge.

North Pole Republican Rep. Tammie Wilson said she would like to have a constitutional guarantee that the amount available for PFDs is 50 percent of the amount being drawn from the fund. Wilson is willing to wait for a constitutional convention to say that the dividend “shall” be one half of the draw.

“I think that if there was any time for a constitutional convention, this would be it,” Wilson said. “This is something important to pretty much every Alaskan.”

If the House does pass the amendment this year, the Senate would also have to approve it. Then, voters statewide would decide whether or not to amend the constitution.

Another concern that lawmakers are struggling with was raised by Alaska Permanent Fund Corp. CEO Angela Rodell.

Rodell said the corporation board wouldn’t support the amendment due to another provision that’s currently included in the proposal. That provision would allow the Legislature to spend more than 4.75 percent of the fund’s value if three quarters of both chambers agree to it. Rodell said that would make draws from the fund unpredictable. She said this would make it difficult for fund managers to make investment decisions.

“It’s going to provide a level of instability that we’re looking to avoid with a constitutional amendment,” Rodell said. “It introduces that instability in perpetuity.”

House Finance Committee amendments to the constitutional amendment resolution were due on Tuesday. Seaton said he would like to advance the amendment to the House floor this week.