Three weeks ago, Alaskan voters had the option to pick between gubernatorial candidates who want to cap the Permanent Fund Dividend and those who don’t.
They don’t agree on much, but both the Republican and Democratic front-runners in Alaska’s governor’s race have a few things in common when it comes to the Permanent Fund and the dividend checks that Alaskans get every year.
They’ve both proposed raising the amount of the PFD. They both support putting the PFD program in the state’s constitution. And they both say they want to ask voters if — and how — the PFD program should be changed.
But, that’s where the similarities end.
Last year, lawmakers adopted a plan that used money from the Permanent Fund to pay for state government and dividends. But those dividend checks have been in flux since Gov. Bill Walker and state legislators started capping them in 2016.
Dunleavy has said throughout his campaign that he wants to undo all that. He said he wants to pay full dividends under the formula the state has been using since 1982. That would have been a roughly $2,900 PFD this year.
“The Permanent Fund and the Permanent Fund Dividend worked well for decades,” Dunleavy said during a recent debate at Anchorage’s CBS-affiliate KTVA. “Nobody ever complained about whether the Permanent Fund dividend was $700 one year, or $900 one year or $1,000 or $600. The people of Alaska had no issue of that. The people of Alaska got upset, Joe, when politicians stuck their fingers in that process without any consultation or any vote on the part of the people of Alaska.”
Dunleavy said he wants to pay Alaskans back for the three years of capped dividends. Add all that up, and it comes out to about $3,500 per person.
Meanwhile, Begich said he’d go along with the idea of drawing on Permanent Fund earnings to fund state government. But, he doesn’t want lawmakers to decide how much the PFD will be each year. Instead, he wants to take a percent of the Permanent Fund’s market value every year and divide it. Half would go toward funding dividends and the other half towards education.
“I want it to go to education where it is constitutionally protected, so every year educators around the state, families and parents and others and kids know their education is going to be funded and make sure teachers aren’t given pink slips every year and the threat of being laid off,” he said.
His proposal would bump up the dividend amount too. It would have resulted in $2,100 checks this year.
Both candidates have said they could streamline government to help pay for their proposals. In the past, Dunleavy has proposed cuts to Medicaid. He’s also said the state could save money by not filling some open positions. But he didn’t get into specifics on what he would cut — and his campaign would not make him available for an interview and did not answer emailed questions.
During a recent interview in Juneau, Begich didn’t get into detail on which parts of state government he would cut either. He said it depends on the price of oil and how big the state’s deficit ended up being. But somewhere in that mix, he said the state will need new revenue.
That’s code for taxes.
“I can tell you it won’t be a wage tax and it will not be a gas tax. Gas tax hurts rural Alaska and is a regressive tax on the poor. A wage tax only affects people who are working,” Begich said. “But, whatever form that we come up with for a revenue stream, may it be income tax, sales tax, corporate or a combination, we do have to go after this $2 billion of wages we pay to workers who don’t live here.”
During a recent debate in Fairbanks, Dunleavy said he does not support new taxes.
But higher dividends have a direct impact on the state’s budget. Legislative finance director David Teal said higher dividends now mean higher deficits.
A deficit is not necessarily a problem. At least, Teal said, it’s not a problem when the state has billions in savings to cover the shortfall.
“There was a time when we could have had no oil revenue whatsoever and coasted for three years, which, in any other state was amazing — it’s amazing here too,” Teal said.
But Alaska has been chewing through savings to cover billion-dollar budget gaps for three years now and it just doesn’t have that kind of money in savings anymore.
So, how does the PFD factor into the state’s budget problems?
Well, the Permanent Fund Dividends are paid out of one big account that the Legislature hasn’t drained. That’s the earnings reserve account of the Permanent Fund.
At last count, it had more than $18 billion in it. Currently, the legislature has a plan in place to draw money from that account — based on the total value of the Permanent Fund. That money would be used to fund dividends and state government — but that means that a higher dividend leaves less money to cover the gap between what the state spends and what it makes. So the higher the dividend, the higher the deficit.
Still, one that both candidates could suggest to pay for their higher PFD proposals is draw billions from that earnings reserve account. Teal said there’s enough money to cover either proposal. They could draw several billion dollars out of that account and spend that money on state government or education or send it directly to Alaskans.
Teal said technically the earnings reserve could handle that right now.
“It becomes a problem only if we have big losses in the stock market. And we have if we have another 2008-2009 type of year, that can vanish very quickly.”
There’s one other, slower type of loss: Any money that gets pulled from that account reduces future dividends because it reduces the value of the fund — so there’s less money, to earn money, to pay them.
But, while Alaska’s next governor might want to change the PFD — it’s the Legislature that will have to decide to do it.