AKLEG DAY 72: Senators open discussion on changing PFD formula, possibly putting it in the constitution

The Senate Finance Committee discusses the PFD calculation during its March 27, 2019 meeting (Photo by Senate Majority Press/Flickr).

The 72nd day of the Legislative session was another busy one with discussion about the PFD, floor votes and the governor’s ongoing roadshow.

Here’s what happened.

A cold reception

Gov. Michael J. Duleavy’s Americans for Prosperity-approved roadshow continued to Nome on Wednesday, where a protestor was arrested and the governor got this frosty reception.

The hearing seemed to play by the same rules as the presentations that were held in Anchorage and Kenai, until President/CEO of Kawerak Melanie Bahnke stood up to be recognized and be afforded an opportunity to give testimony to the governor, according to the Nome Nugget.

Senate Finance talks the PFD

The Senate Finance Committee hosted a meeting on Wednesday entitled a “Discussion on Permanent Fund Dividend Calculation.” The takeaway is that the Senate is positioning to formally change the calculation used to pay out dividends whether it be through statute or a constitutional change.

Last year’s Senate Bill 26 created the statutory framework for the percent of market value draw, allowing a set percentage of the permanent fund to be available to the Legislature via the earnings reserve account to pay for government and dividends. The law left the historical permanent fund calculation in law, effectively leaving the size of the PFD to be a political battle every year.

The Senate seems to be done with that.

“The goal is to only take 5.25 or 5 percent of the fund and never any more than that. No additional unstructured draws, no transfers, nothing. We want to protect the permanent fund over the long term,” said Sen. Natasha von Imhof, R-Anchorage. “And that means need to let it grow by not taking too much out in any given year. That was the whole reason we passed Senate Bill 26.”

The mention of transfers and additional unstructured draws seems to be a direct rebuttal of Gov. Michael J. Dunleavy’s proposal to payback dividends with unstructured draws over the next three years. The Senate’s skepticism over the repayment has been building throughout session.

Von Imhof led the presentation, explaining how the political focus on large PFDs is undercutting the state’s ability to pay for reasonable and needed services. The presentation included a chart showing the funding interplay between dividends and state funding.

Sen. Bert Stedman, the Sitka Republican who’s overseeing the operating budget, said even at a 50/50 split it’s going to be difficult for the Legislature because it would require them coming up with more than $800 million in cuts in year.

“We can’t get $861 million in reductions,” he said. “That I can virtually assure you when the operating budget is put together … we can’t get $861 million. Unfortunately, I’m going to have to tell members that I can’t get there. It’s going to be a number substantially less than that. We still have to pay a dividend and we have to make our payroll, and we have to balance those two out. Frankly, I think we’re going to be looking at a multi-year step approach.”

Stedman mentioned the $274 million figure in cuts—which pays out a $1,406 dividend—as a more doable single-year approach.

The idea wasn’t without push back.

Sen. Bill Wielechowski, the Anchorage Democrat who took former Gov. Bill Walker’s veto of the PFD to court, argued that the Legislature should also be looking at the per barrel tax credits as an alternative to cuts to government and the PFD.

Sen. Lyman Hoffman, D-Bethel, said he would rather see the whole debate over the PFD be put to rest forever. Hoffman, the Legislature’s longest serving legislator, said he’s worried that the size of the PFD will continue to be a debate every year and distract from other issues facing the state.

“We may talk about a statutory change to the current bill, we may ignore it, and then the dividend becomes the issue of discussion year after year, year in and year out, and guess what gets the most attention in the budget process? It’s what is going to be the dividend,” he said. “If we do not resolve the issue on a permanent basis and let the people of Alaska decide what that may be, we are setting ourselves up for decades to come to be making the dividend a political discussion for everyone’s election. … It would be a grave mistake if we make a statute change that can be ignored.”

When asked if he was supporting a constitutional change, Hoffman said yes, “I would like to resolve the issue once and for all. … I say that yes we need to clear the tables and let’s resolve this as a state so we can move forward.”

Von Imhof closed the meeting by saying that there needs to be a balance, but she said she opposed the idea of enshrining the PFD in the constitution.

“When you look at the cost of everything and the value of nothing, it gives me pause. What I’m hearing is some folks saying that they value the individual over the community and with crime and safety being such a big issue, and education and teachers and educating our students and our young people for the future. As long as they have—it sounds to me—a $3,000 dividend it doesn’t matter whether there’s teachers or village safety officers or troopers,” she said. “I’m very dismayed, personally, hearing some of the comments here today because I value both the individual and the community. I value balance between core government services and the dividend. I value a sane and reasonable size of government that also values the workforce here in our state, our natural resources, all of it.”

No legislation has been introduced to alter the statutory formula on the PFD, yet.

Also absent from the meeting was a mention of an income tax as an alternative to massive cuts to the PFD or state spending.

House cuts

While the Senate seems to be targeting cuts in the neighborhood of $250 million this year, the House came up with $47 million in cuts in the budget its assembled so far. The biggest cuts came from the Department of Corrections, where the House is proposing an increased use of cheaper options like halfway homes and electronic monitoring in place of more costly prison cells.

The Senate passes ethics rollback

The Senate passed a rollback of some parts of last year’s House Bill 44 that they said were preventing them from conducting their business. The law required legislators to declare conflicts of interest during official business, but an interpretation of the law this year made its application far more broad in scope than was expected last year.

Instead of defining what constituted official action, as the sponsor suggested, the Senate has opted for a rollback of the rules, including rolling back portions of the law that expanded what constituted a financial conflict of interest.

The bill passed 15-4 with Sens. Jesse Kiehl, Scott Kawasaki, Donny Olson and Bill Wielechowski voting against the measure.

It now heads to the House.

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