Dunleavy’s conversation starter on the PFD will end with big cuts or big taxes

Gov. Mike Dunleavy announces his renewed push to constitutionalize the PFD on May 12, 2021.

“I’m endorsing the beginning of the conversation,” Gov. Mike Dunleavy said during his Wednesday news conference announcing a renewed push to put the Alaska Permanent Fund dividend in the constitution at a lower rate than the historical formula but at a far higher rate than in recent years.

Senate Joint Resolution 6 proposes putting splitting the percent of market value draw of the Alaska Permanent Fund 50-50 between government services and dividends, which would pay a dividend in the neighborhood of $2,600. It would also leave a whopping $1.1 billion gap in the state’s budget with no clear direction on how it would be closed. Would that be covered with deep cuts to state services? Steep hikes in taxes? A mix of both?

The governor refused to say on Wednesday, arguing that everything is on the table but that we can’t begin to have that part of the conversation until the state first settles the dividend. The measure would need 14 votes in the Senate and 27 in the House to be put to voters in the 2022 election, where Dunleavy would be up for re-election, and go into effect the following year.

New to the plan is a proposal to add the Power Cost Equalization program to the Alaska constitution.

And while attendees of the meeting, who are mostly Republican legislators who’ve mostly been dead-set on paying out the dividend according to the historical formula, argued that there was broad support for the change, it was hard to ignore the fact that several key legislators were not present at the meeting. The biggest glaring absences were House and Senate finance committee co-chairs. In both chambers, those chairs have favored a smaller dividend that won’t result in the big tax hikes or deep spending cuts that would be necessitated by Dunleavy’s proposal.

Other skeptics of the proposal noted that while it would settle the dividend by putting it in the constitution, it would also enshrine a budget deficit with no clarity on what would happen when the state’s options finally run out. Dunleavy’s proposal would also seek a transfer of $3 billion from the Alaska Permanent Fund to the state’s savings to serve as a multi-year bridge while further cuts or taxes could be considered, which in turn would reduce the size of the Alaska Permanent Fund and forever reduce the investment revenue for either government funding or the dividend.

Not everyone is a fan of the piecemeal approach.

On that front, the House is currently considering a pair of proposals that seek to alter the PFD formula and address the deficit in a more complete fashion. Rep. Kelly Merrick’s House Bill 202 would eliminate the link between the Alaska Permanent Fund and the dividend while pushing for 30% of resource royalties to go to a dividend. This plan would balance the budget without any new taxes but pay out a $500 PFD.

Rep. Adam Wool’s House Bill 37 would pay out a roughly $1,000 PFD by designating 20% of the market value draw from the Alaska Permanent Fund for the dividend. It would reach a balanced budget by implementing a 2.5% income tax. It would impact households as follows:

Wool argued that such an approach would be a more equitable way of balancing the state’s budget while maintaining a dividend that has become particularly important in narrowing the wealth gap in Alaska and in helping low-income Alaskans handle living costs.

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