Jenkins: Using the Permanent Fund – courageous or nuts?

By Paul Jenkins |

They are either courageous or nuts, take your pick. In an historic vote, 36 of Alaska’s 60 lawmakers waded into the deep end of the pool to use, for the first time, the state’s $64.6 billion Permanent Fund for its long-established purpose — underwriting government when oil revenues go “kersplat.”

After years of knock-down, drag-out legislative brouhahas over using the Alaska Permanent Fund for much of anything but annual payouts to Alaskans, lawmakers finally adopted a Percent of Market Value approach, or POMV, to using the fund to help make ends meet. The idea — endorsed by the Alaska Permanent Fund Corp.’s board of trustees — is to annually draw no more than 5.25 percent of a five-year average of the fund’s value from its Earnings Reserve Account, which now holds $17.6 billion.

Lawmakers had little choice. The state’s savings accounts are almost as empty as a campaign promise.
The three-page compromise, Senate Bill 26, passed the House 23-17 and the Senate, 13-6, with one legislator, newly appointed Sen. Mike Shower, R-Wasilla, excused. Then it was hustled off to Gov. Bill Walker, who hailed the measure as “landmark legislation.”

Earlier sticking points between the chambers fell by the wayside. There is no spending cap, no taxes — and no guaranteed Permanent Fund dividends. The “whether” and “how much” of each fall’s dividend is left to lawmakers’ whims. That should give dividend advocates palpitations and it promises annual fireworks.
The Legislature in 1982 hammered out the formula for distribution of fund earnings: 21 percent of the earnings, based on a five-year average, to dividends; the rest stayed in the Permanent Fund earnings reserve for another use, another day. It worked swell until Gov. Walker and the Legislature slashed dividends by more than half in 2016 and 2017 as a wake-up call to Alaskans that the good times were rolling out of hand.

The formula, set in statute, lingers on the books, a paper tiger. The dividend, it turns out, is an appropriation and the Legislature’s constitutional appropriation authority, along with Gov. Walker’s veto authority, outweigh any statute. The Alaska Supreme Court says so.
Some were leery of the dividend idea from the get-go. From a public policy standpoint, the Legislature’s narrow adoption of the annual payout in 1980 was a tail looking for a dog to wag. Many feared the dividend would become an entitlement, a billion-dollar albatross hanging from the state’s fiscal neck. (Just for the record, I enthusiastically, hypocritically cash mine with glee.)

When then-Gov. Jay Hammond latched onto the dividend idea as a way to keep politicians’ fingers off the state’s oil wealth account, it was a stroke of genius. He believed that if Alaskans got a piece of the action, they would fight like mama bears to protect the fund. He was right. The annual payment assumed a life of its own.

Despite that, the dividends — unmentioned, by the way, anywhere in 1976’s voter-approved constitutional amendment that formed the Alaska Permanent Fund — are likely to go the way of the dodo bird. I am somewhat ambivalent about that, but not alone in believing the dividend is in trouble.
The Alaska Journal of Commerce reports: “Sen. Bill Wielechowski, D-Anchorage, said in floor debate that leaving the existing formula in place — that was disregarded by Walker and the Legislature in 2016 and 2017, respectively — means the Legislature will continue to bypass the PFD in law in favor of providing more cash to government agencies.”

With the dividend hooked to legislative caprice, it is easy to predict its eventual demise — not today, not tomorrow, but you can see it from here. Legislators in the past were too terrified to trifle with the fund or the dividend. To do so would have been political suicide. Nowadays, not so much. A bunch of them just proved that point. It only will be easier in the future.

Just as previous Legislatures have been unable to balance the size of government and revenues, future lawmakers predictably will nibble at dividends in pursuit of cash for this program or that, or plugging the fiscal gap when oil prices tank again — and they will.

Legislators should be congratulated for doing — finally — what long has been necessary in creating a POMV approach for using the Permanent Fund. It is too bad they waited until now, and that it remains vulnerable because it is a statute. Their not setting a percentage for the dividend program — mandated with “shall” language — also may come back to haunt them each year when fireworks erupt over “whether” and “how much.”

In the end, it may cost those lawmakers who voted for SB 26 knowing that it put the Permanent Fund dividend in annual limbo.

It will depend on whether voters believe them courageous — or nuts.

4 Responses to Jenkins: Using the Permanent Fund – courageous or nuts?

  1. Rev Bill May 14, 2018 at 7:05 am

    Those up for re-election in November who remain in the legislature will have proven themselves “courageous”. Those who find themselves outside looking in? Yup. Nuts.
    But, fellow Alaskans, they won’t figure that out unless you keep track of whose hands are in your pockets and throw them out.

    Reply
  2. A.M.Johnson May 14, 2018 at 7:09 am

    Editor,

    There are so many ways that voting for my House Representative will not transpire. This vote on the use of the assets well known to be the intent of the permanent fund distribution, as stated by the author,will represent one of several.
    To be fair, the Representative has been faithful in responding to each of my inquiries. debated my suggestions, and for sure, not influenced by my “Outside” force.

    Regards,
    A.M.Johnson-Ketchikan

    Reply
  3. John London May 14, 2018 at 9:40 am

    1. Elite high earners will turn the fund to dust as long as they are not taxed to run the Victim Industrial Complex.

    Don’t be fooled by rhetoric.

    2. The Victim Industrial Complex will spend it all, (because they care) lol – for their job – until it is gone.

    2 sides of a very sordid coin.

    Reply
  4. Randy S Griffin Fairbanks Alaska May 15, 2018 at 9:29 pm

    The legislators that voted to use some of the earnings of the Permanent fund for government services are courageous.

    The massive $3 billion yearly state budget deficits for the past 3 years, and the nearly drained out CBR savings account made it clear that it was absolutely necessary to use some of the earnings of the Permanent Fund for state services (schools, roads, troopers, revenue sharing to cities, etc.).

    Any legislator who could not figure that out is nuts.

    The reason why the legislators that approved SB 26 are courageous, is because in the state house it passed by 23 to 17. That means 2 representatives could have switched their vote to “NO”, and it still would have passed 21 to 19.

    That means that any one of the representatives could have ducked for cover in the “NO” column and would have been able to strut and crow about how they are such champions of the PFD payouts. This would give them a windfall of votes in the November election.

    They would be able to have their cake and eat it to. They would be able to think silently to themselves: “Whew! The state just barely escaped falling off the financial cliff, now that SB 26 passed.” But at the same time, they can say they were against SB 26 and will rake in the votes for being “champions” of the fattest PFD payment.

    But those legislators who believed that SB 26 was the sensible thing to do, and who were also willing to put their name on the record of supporting SB 26, are truly courageous. Because they know very well that they may be voted out of office by masses of angry voters who demand a maximum PFD payment from the state government.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

For information, sizing, and rates of banner advertising space we have available, please e-mail Mark Hopkin at markh@porcaro.me, or call him at (907) 276-4262.