Senate advances a $1,600 dividend in new bill that depletes one savings account and guts another

The Senate Rules Committee reviews Senate Bill 1002, which would pay out a $1,600 dividend. (Screenshot from GavelAlaska)

Update: This story has been updated with the noon Senate Rules Committee meeting, where the legislation was advanced to a floor vote after a short debate about the bill.

The Senate won praise from Gov. Michael J. Dunleavy earlier in the session when it passed a budget including a $3,000 dividend instead of following the House plan to pass a smaller dividend in a separate bill.

Today, the Senate has proposed a smaller dividend in a separate bill.

Senate Bill 1002 would pay a $1,600 dividend with funding cobbled together from multiple sources, depleting one savings account completely. It was given the fast-track treatment this morning, the 18th day of the 30-day special session, with a sole visit to the Senate Rules Committee on its path to a vote.

Dunleavy has already pledged to veto the bill, writing in a prepared statement: “Let me be clear, this is a non-starter. If passed, I will veto SB 1002.”

The discussion in the rules committee focused on the overall picture of the state’s finances. Senate Finance Committee co-chair Sen. Bert Stedman, R-Sitka, led the discussion on the bill, arguing that the $1.9 billion required to pay out a full $3,000 dividend is untenable. The cost of the $1,600 dividend would be about $1.07 billion, he said.

“It’s not so much the individual dividend itself that alarms some of the financial views of our structure,” he said. “It’s when we take the total financial impact and try to cash flow it.”

The funding mechanism for the $1,600 dividend would be cobbled together from three sources:

  • $770 million in general fund money, which is roughly the expected remainder after funding the budget from the structured draw legislators approved from the Alaska Permanent Fund last year
  • $172 million from the statutory budget reserve, which requires a majority vote and essentially deplete the account
  • $128 million from the Alaska Higher Education Investment Fund, a source of money that was set aside in 2012 to pay for needs-based and merit-based scholarships to the University of Alaska but has largely become a band-aid to fund other shortfalls in the state’s budget

Stedman said the breakdown would keep the state’s withdrawals from the permanent fund in line with the rules passed last year and minimize the damage to the state’s future investment returns. He acknowledged that the draws would essentially empty the statutory budget reserve and use the Alaska Higher Education Investment Fund as a “shock absorber” dependent on the number of people who apply for the dividend.

When asked what the impact would be on the college scholarships might be, Stedman didn’t have a clear answer but said if the fund was depleted, then the Legislature could fill it in the future. The account has about $340 million in it.

He noted that the operating budget isn’t the only part of the state’s spending formula. He noted that the state will have to come up with the roughly $40 million to pay for the crime bill as well as other legislation and a still-pending capital budget. All told, he said it’s about $240 million on top of the operating budget, nearly wiping out the cuts the Legislature made.

Why $1,600?

“I wouldn’t want to say it’s an arbitrary number,” Stedman explained when asked why they settled on that amount, but said it ultimately came down to the politics.

He said the consensus was basically to keep the same dividend from 2018.

Sen. Natasha von Imhof, R-Anchorage, was critical that the legislation was reaching beyond what could be funded with the remainder of the draw from the permanent fund. That $770 million would pay a roughly $1,000 dividend, she said, once every thing else is taken into account.

“Right now we’re contemplating a $1,600 dividend. Why? Because it’s a negotiated amount. We can’t afford it,” she said. “We’re draining savings accounts and I don’t know what we’re going to do next year.”

She said she worried that this year’s stretch to pay a larger dividend will only set a bad precedent, encouraging legislators to dip further into the Alaska Permanent Fund’s earnings reserve account beyond the structured draw. She said that kind of spending would only lead down the path to taxes, which she said is unacceptable if it’s intended to pay a dividend.

“Each time you take more than a 5.25 percent (percent of market value draw) and you get closer and closer to 6.5 percent, we erode the fund,” she said. “We get closer and closer to an income tax. For us to do an income tax on hardworking citizens to turn around and deposit in their neighbor’s checking account is not a Republican fiscal conservative value, at least not in my book.”

What’s next

Despite general heartburn over various elements of the proposal—whether it be the burden on the state’s finances or the fact that it’s not a $3,000 dividend—the Senate Rules Committee advanced the legislation to a floor vote, which could take place as early as Tuesday.

Legislators would have an opportunity to debate and amend the bill at that point before sending it over to the House.

Why it matters

The decision to separate the dividend from the budget moves the state a step closer to avoiding a shutdown. The operating budget has been largely finished since mid-May but has not seen any movement as deep divides in the Senate over the dividend have brought things to a standstill.

Removing the dividend from the budget, means the budget could be quickly sent to the governor’s desk avoiding fears of a state shutdown come July 1. Traditionally, notices that layoffs could potentially take place would be sent out to employees today, but Dunleavy has opted to delay the notices until after the end of the special session on June 14.

The passage of a budget sooner than later would also give an emergency boost to the state’s Medicaid program, which is expected to run out of money in the next week resulting in health care providers going without payments for Medicaid services for the final three weeks of the legislative session. The failure to make the payments could put many smaller hospitals and health care providers in difficult financial positions.

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3 Comments on "Senate advances a $1,600 dividend in new bill that depletes one savings account and guts another"

  1. I don’t know if I am reading this right but it sounds like the governor wants a big dividend to satisfy a campaign promise. The PFD has been structured very carefully in an attempt to make it sustainable and draws are to be taken at a certain percentage.
    With the stock market at all time highs why would the normal draw supply only $1000 or $1600? If the balance is needed to make the state functional then that’s what needs to be done as that was also the purpose of the fund.
    But we should not be giving the oil companies a $1.9 billion break when we can not afford it and then cut everything else for the citizens.

  2. The best option is to pass a $1,000 dividend…or less. It is time to come to the realization that we as a State are beginning to live off from our retirement account and that we failed to save enough to cover all desires. As such it is time to prioritize our needs, and paying a PFD falls below the collective needs of Alaskans. We have a Legislative branch to determine our collective needs, and to fund those needs.

  3. Use
    The red pen Dunleavy

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