Dunleavy backpedals, won’t fight $4 billion Permanent Fund transfer

After attempting to blame a drafting error for his administration’s failure to veto a $4 billion transfer from the Alaska Permanent Fund’s easily spendable earnings to the fund’s constitutionally protected corpus and arguing that the Legislature should accept it anyways, Gov. Mike Dunleavy today conceded that the error was unfixable.

In a statement to reporters today, which was reported by the Associated Press, a spokesman for the administration said the governor will not challenge the transfer.

Dunleavy announced he had canceled the transfer on July 1, saying it would allow the administration greater flexibility to address the state’s financial future but didn’t include the veto in the budget that was ultimately returned to the Legislature, where majorities had supported the transfer.

The governor’s currently proposed fiscal plan calls for the state to overspend the Alaska Permanent Fund by at least $4 billion to pay for both this year’s dividend and to bridge the current budget to one that he claims will balance in several years. The plan has gained very little traction because of how much savings it spends and its reliance on uncertain cuts and income.

While the governor’s claims overspending is acceptable given the fund’s performance this year, the overspending has gained little traction with legislators who’ve favored a conservative approach with the fund. Instead of overspending the account, legislators have proposed moving billions of dollars from the Earnings Reserve Account, which can be spent with a majority vote of the Legislature, to the constitutionally protected corpus of the account.

In recent years, the Legislature has sought to transfer more than $10 billion to the corpus of the fund, a figure that was ultimately reduced to about $5 billion by Dunleavy’s vetoes. The governor’s failure to stop the transfer will bring it to about $9 billion. It’s a significant move in the long-run because every billion dollars in the account equates to roughly $50 million in additional annual revenue.

The key architect behind the transfers is Sitka Republican Sen. Bert Stedman, who told the Associated Press that the outcome abides by the rules.

“The rules are set up and the structure set up intentionally to have a fair political process, and this is the process you have to follow. You can’t just modify things … after everything, and your documents are signed and stamped and done,” he said. “That’s not how it works.”

As of the most recent financial statement covering through the end of May, the Alaska Permanent Fund has about $16.6 billion in the earnings reserve account, of which only $12.1 billion is realized and spendable. Under the existing rules for government funding, about $3.1 billion will go to government over the course of the year and $4 billion will go to the corpus of the fund.