A bill that would rearrange how earnings from the Permanent Fund are used passed the Senate last week, with a version set next to be read by the House Finance Committee.
The “Permanent Fund Protection Act” (SB 26) would arrange the Fund’s Earnings Reserve Account – from which the state’s annual dividends are paid out – so that the amount of money drawn from the earnings would be tied to a percent of market value, or POMV, approach.
The bill would set up how the ERA would be tapped, and would set the POMV limit at a 5.25-percent withdraw rate from the Fund, based on a five-year historical average of value. So for example, a draw from the ERA the next fiscal year would amount to around $2,526,000,000 based on Legislative Finance Division estimates.
The version passed by the Senate floor in a 12-8 vote on March 15 would have that draw split between the state’s operating budget and the PFD in an 75-25 split, respectively, with $1.89B going to fund government services. A previous draft would have had that at a slightly more disparate 80-20 split, but was amended in committee. Still, for the first few years individual PFD payments would be set at $1,000, and allowed to increase from there.
The bill supplants several similar bills put forward this session in the Senate, such as SB 70 and Sitka Sen. Bert Stedman’s SB 21. Stedman explained that under his version of the restructure, the POMV draw was set at 4.5-percent. This falls within the range recommended by the Alaska Permanent Fund Corporation Trustees for protecting the fund’s principal. It figures a sustainable yield for the fund at a ceiling of five percent each year, based on its average total value for the previous five years.
“That would inflation-proof itself, give yourself a margin,” said Stedman. At that lower rate, he continued, the Fund portfolio would be better able to withstand fluctuations in the market over time.
“I think personally the original structure (of SB 21) is more palatable to the general public, and more sustainable from a portfolio management perspective, but it’s just a step in a journey along the way,” Stedman commented.
Even with SB 26 in place as currently drafted, there would still be just under a billion dollars’ spending deficit to close. That will take a combination of cuts, revenue enhancements, and positive market conditions to overcome, but agreement on how best to partition that still seems far off.
On the House side, HB 115 was awaiting a reading as of Tuesday. It was scheduled tentatively to be heard this morning at 9 a.m. In that bill, the POMV draw would be set at 4.75 percent, with a third going toward dividend payments and the rest going toward the operating budget.
The bill would also establish a statewide income tax, set at 15 percent of the federal liability. This component may find itself at loggerheads when reconciling the budget with the Senate’s version later in the session, which appears to favor deeper cuts over increasing tax revenues.
With differing majority caucuses in both chambers, Stedman foresees the debate going into future legislative sessions. However, both
chambers seem to be in agreement when it comes to repurposing the Fund’s ERA, which at least brings down the overall deficit substantially. At current spending rates, the state has fewer than two years of savings in the Congressional Budget Reserve to draw from.
“(SB) 26 will extend the life of the CBR and give us more time to work our way out of this problem,” Stedman said. “We’ll see what those rates are and the split level is, and we’ll see how that goes the next couple years as we work through this problem.”
Ahead of the committee’s review of SB 26, House Finance member Rep. Dan Ortiz (I-Ketchikan) will be taking public input this evening with a constituent teleconference. For Wrangell, residents can participate at the Legislative Information Office at 5 p.m., upstairs inside the Kadin Building.
“You’re seeing now the slow turning of Alaska’s economic shift to get out of this recession and its structural deficit issue,” Stedman commented. “Hopefully at the end of this session we’re going to have the restructuring proposal refined for the Permanent
Fund and we’re then going to continue over the next couple of years to fix the problem.”
Reader Comments(0)