Andrew Kitchenman

Alaska lawmakers are raising alarm over a provision of a bill that would cut Permanent Fund dividends and draw on fund earnings to pay for state spending. The provision limits state revenue when oil prices rise, and doesn’t allow the state to adjust for inflation.

This could have the effect of steadily eroding the amount available for government spending – from state aid for schools to capital projects to public safety.

Rep. Les Gara, D-Anchorage, said a law intended to stabilize government could instead undermine it.

“It has this sort of stealth provision to make sure legislative funding for schools and other services doesn’t even keep pace with inflation in the future — a sort of cap on state services,”

The bill limits the combined state government revenue from the Permanent Fund and the oil and gas industry. If inflation in Alaska in the next 35 years is similar to the past three and a half decades, then inflation-adjusted revenue would fall over time by two-thirds.

Once state oil and gas revenue reaches $1.2 billion, every additional dollar would be offset by a dollar cut in government revenue from Permanent Fund earnings. The $1.2 billion amount isn’t adjusted for inflation, under the bill.

Even some of the bill’s biggest supporters weren’t aware of the provision. They include Alaska AFL-CIO President Vince Beltrami. He said he still wants the bill to pass. But he said he’d be concerned if the lack of inflation works the way the lawmakers said it would.

“I do see that as being a concern,” he said. “But it’s like, you know, don’t let the perfect be the enemy of the good. I think it’s something that we can go back and fix in future legislatures.”

Beltrami said he spoke with legislators Wednesday urging them to support the bill, citing the benefit of reducing the state’s deficit.

It also faces opposition from some Republicans, who have an opposite concern. They say the legislature hasn’t gone far enough in reducing state government spending immediately. Rep. Lynn Gattis, R-Wasilla, said she could support the bill if Gov. Bill Walker vetoes enough from the state budget so that the total cut to government spending is $1 billion, about a fifth of the budget.

“We don’t mind being Alaskans and pitching in,” Gattis said. “And we think the (reducing the amount available for the) PFD is that thing we can do to help. But here’s what we do mind: You haven’t cut the largesse of government. Until  you do that, we’re not going to give up our money, and we’re going to squawk and we’re going to scream.”

House Speaker Mike Chenault, R-Nikiski, said he’s not sure there’s enough support in the House to pass the bill. The Senate passed its version on Monday.

Drawing money from Permanent Fund earnings for the state budget is the centerpiece of Walker’s fiscal plan. The legislature hasn’t passed any other new revenue measures proposed by Walker. It did pass cuts to oil and gas tax credits, but the cuts were much less than those Walker proposed.

The House Finance Committee has scheduled a hearing on the bill on Tuesday.

Permanent Fund dividends would be cut in half under a bill the Senate passed Monday. It’s part of a plan to change the basis for funding state government from a dependence on oil revenues toward Permanent Fund earnings.  But the plan has its detractors.

Bill supporter Sen. Lesil McGuire, R-Anchorage, says the bill would make Alaskans more invested in the state budget, while providing a sounder, more predictable basis for funding government services.

“This bill is the most important thing that I will do in my 16 years and I would dare to say anyone here in this room will do in their political career,” McGuire said. “It is the main step toward stabilizing Alaska’s future.”

The bill would draw as much as 5.25 percent from the Permanent Fund earnings account each year. And it would cut the PFD from its current level of roughly $2,000 to $1,000. After three years, dividend checks would be based on a combination of 20 percent of oil royalties and 1.05 percent of the Permanent Fund. It should still equal about $1,000.

Sen. Anna MacKinnon, R-Eagle River, supports the bill. She said it’s a financially responsible way to provide necessary services. Without changes, the state runs the risk of exhausting its savings – imperiling all dividends – in a few years.

“The bill before you maintains our savings account. It increases the longevity of how long those savings accounts can be around for future generations,” MacKinnon said. “It secures the corpus of the Permanent Fund.”

Sen. Bill Wielechowski, D-Anchorage, cited several reasons for opposing the bill. He said he’s promised voters he’d protect their dividends, and he said the change isn’t necessary.

“People say, ‘Well, it’s not really a tax. It’s just cutting the dividend.’ It’s semantics in my opinion,” Wielechowski said. “And I think if you were to ask your constituents, and I know if I ask my constituents – all they know is, it’s $1,000 out of their pockets.”

Sen. Mike Dunleavy, R-Wasilla, said he opposed the bill because the state could make deeper cuts to the budget next year, but the pressure to make those cuts could be reduced if the bill becomes law.

“There’s no doubt that the math would indicate over the long term that we’re going to have to do something structurally,” Dunleavy said. “I just think we’re probably a year or two premature on this.”

The Senate voted 14-5 to pass the bill.

Gov. Bill Walker applauded the vote, but he noted a concern about whether the impact of the budget changes are balanced. He’s proposed other measures to raise revenue, including introducing a personal income tax. While the PFD changes would primarily affect middle- and low-income Alaskans, the income tax would fall most heavily on higher-income residents.

The House version of the Permanent Fund bill is up for a hearing in the House Finance Committee on Tuesday, June 14.

Editor’s note: The timing of the House Finance Committee’s hearing on its version of the Permanent Fund bill has been corrected. The hearing is scheduled for Tuesday, June 14, not Monday, June 13. 

Oil and gas companies would continue to receive tax credits under a bill that both bodies of the legislature passed Monday, but they may not be able to count on receiving much this year.  That’s because the next round of credits depends on funding that one key lawmaker is already calling on Governor Bill Walker to veto.

House voted 21-19 and the Senate voted 13-6 to pass an amended version of the Senate’s bill. It’s the twelfth version of House Bill 247 that the legislature discussed this year.

The bill provides much less in savings to the state government than the version the House passed.

Sen. Cathy Giessel, R-Anchorage, said the bill protects the state’s fiscal outlook and sends a message to the state’s partners in developing a natural gas pipeline.

“It protects our today as well, in terms of reducing the tax credit outlay, but also keeping in place a stable tax structure which will do what we can to ensure a major gas project in the future.”

To provide tax credits this year, the bill depends on drawing on $430 million that would otherwise go into state savings.

Rep. Paul Seaton, R-Homer, opposed the bill. He said Walker should veto the $430 million. That would leave tax credits at a minimum of $32 million, with most of this year’s credits pushed off into the future.

“With that bill, it makes it so without any production tax credits coming in, I don’t think we can possibly reach a sustainable fiscal plan, because we’re limiting one of the only sources of revenue the state has significantly.”

Four Republican House members who previously voted for deeper cuts to tax credits supported the bill.

Rep. Jim Colver, R-Palmer, said the bill isn’t perfect, but would be an improvement over current law.

“Are we reducing the cash burn to the state treasury? And, yes we are,” Colver said. “Is it as fast as some of us would like? No. But it’s going to make a substantial impact to the bottom line of our budget.”

While both the House and Senate bills reduced tax credits for oil production in Cook Inlet, the House version would have also eliminated the ability of North Slope oil producers to use operating losses to reduce future tax liability.

The bill disappointed members of the Democratic-led House Minority caucus. Caucus members originally hoped that cuts in oil and gas tax credits would be part of a budget compromise. But they voted for the budget last week to avoid layoff notices to state workers.

Rep. Geran Tarr, D-Anchorage, unsuccessfully sought to amend the bill to make it more similar to the House version. As the only minority member of the bill conference committee, she was outvoted 5-1.

“I don’t think we could say that this is going to provide stability, because we have not dealt with a couple of the problem areas that if the prices dip low again, we’ll have to come back and address,” she said.

The Senate voted 15-2 Friday to pass a bill to lower health insurance premium increases for individuals and families.

State Insurance Division director Lori Wing-Heier told lawmakers last week that the individual insurance market could collapse if the legislature didn’t pass House Bill 374.

Bill supporter Sen. Mia Costello, R-Anchorage, noted that insurance bills now exceed many families’ mortgage payments.

“Through this legislation, we’re addressing a crisis,” she said, adding: “Essentially, we’re up against a wall.”

The bill provides $55 million to fund a reinsurance program. This will offset the cost of Alaskans with the highest healthcare costs.

Premera Alaska will be the only insurer on the individual market after Moda Health said it would stop offering individual plans by the end of the year.

Wing-Heier says there are many reasons why Alaska has high healthcare costs.

“There’s a lot of duplication in equipment in Alaska. And there’s also no mechanism to control fees in the private industry and physicians,” she said. “Those are things that we need to work on.”

The House could vote on the bill as soon as Saturday to send the bill to Gov. Bill Walker’s desk.

Anchorage Democratic Sen. Johnny Ellis and Wasilla Republican Sen. Charlie Huggins announced they won’t seek re-election.

Ellis and Huggins joined two other senators — Chugiak Republican Bill Stoltze and Anchorage Republican Lesil McGuire — in deciding against running again.

Ellis said he felt a sense of accomplishment from the legislature passing the criminal justice overhaul aimed at reducing recidivism and the number of nonviolent prisoners.

But he also expressed disappointment that the legislature hadn’t passed a plan to improve the state’s fiscal outlook. “I felt … a great sense of frustration about the lack of a fiscal plan – progress on a fiscal plan this year,” Ellis said. “I think it’s a failure of this legislature.”

Democrats Tom Begich and Ed Wesley are running to succeed Ellis. Republicans Wasilla Rep. Lynn Gattis and David Wilson are running for Huggins’ Senate seat.

Palmer Rep. Shelley Hughes is running against Adam Crum and Steve St. Clair for the Republican nomination to succeed Stoltze. The winner will face Democrat Samantha Laudert-Rodgers and nonpartisan candidate Tim Hale.

Anchorage Rep. Craig Johnson will face Jeffrey Landfield and Natasha Von Imhof for the Republican nomination to replace McGuire. Roselynn Cacy and Forrest McDonald are competing for the Democratic nomination for the seat, while nonpartisan candidate Tom Johnson also is seeking to succeed McGuire.

In addition to the three representatives who are seeking to move up to the Senate – Gattis, Hughes, and Johnson – two other Republicans aren’t running for re-election to the House. They are Mike Hawker of Anchorage and Kurt Olson of Soldotna.

Gov. Bill Walker said the legislature’s work is a long way from being over. While lawmakers stopped pink slips from being sent to state workers by passing a state budget Tuesday, Walker said the legislature must act now to prevent a replay in the future.

“Do we have to go broke before we fix Alaska?” Walker said. “I guess that’s my question to the legislature: Do we actually have to do that?”

The budget relies on a $3.2 billion draw from the Constitutional Budget Reserve to pay for spending.

Walker is urging the legislature to pass his fiscal plan. A central portion of the plan is reductions to oil and gas tax credits. In addition, the plan would restructure Permanent Fund earnings to pay for the budget and reduce dividend payments. Walker also introduced a personal income tax and proposed raising other taxes.

In a news conference Wednesday, a visibly frustrated Walker replied to a question about whether he’d veto portions of the budget; he said there would be consequences for the budget if the legislature doesn’t do more.

Some legislators are calling on Walker to be more involved in advocating for his bills.

House Majority Leader Charisse Millett said the governor should do more.

“He has to talk to our constituents,” Millett said. “I mean, this is something that he needs to have a conversation with Alaska about what this means for our economy, how each one individually affects the economy, what the overall plan will be. I think that’s something very important.”

Walker rejected the idea that he and his administration haven’t been involved enough in advocating for his plan.

“Those that say we haven’t done enough — I’m pushing back on that,” he said. “I’m very offended by that. That’s unjustified and it’s an insult — not to me — it’s an insult to my staff. Our directors, our cabinet members that have given up, you know, a lot of their personal time to travel this great state to do that.”

And while legislative leaders said they were happy to have bipartisan support to fund the budget, Walker said the legislature must continue its work. He said without new revenue, the state will be in the same position next year. But it won’t have the same savings to draw from to pay for the budget.

“That’s why we were elected. To come and make these decisions,” Walker said. “I’ve heard lots of discussion of, ‘Let’s just get through this next election. We’ll do it after the election.’ You know, (it’s) time we stop talking about the upcoming election, or the re-election — and start making decisions about what’s best for Alaska right now. “

Republican majority leaders have said that some bills will come up for votes, although committee chairs may block others. But Walker said it’s not enough to vote on bills. The governor said the state must pass them to prevent uncertainty that will slow the state’s economy and downgrade the state’s credit ratings.