Sen. Bert Stedman
Before the 30th Alaska Legislature meets for its second regular session next Tuesday, Sen. Bert Stedman (R-Sitka) stopped in Wrangell last week to meet with constituents.
Visiting with the city manager and staff on January 4, Stedman's visit came on the heels of meetings with officials in Petersburg and was to be followed by a trip to Ketchikan.
"Before every session I try to come down and run through the district, talking to city hall, finding out what's going on with the city councils and assemblies and the mayors," he explained.
The purpose of the senator's visits is to receive input, prioritize issues and share his assessment of the upcoming session. When legislators get together in Juneau next week, the primary focus of the session will be addressing the state's finances. Looking ahead, they will consider operating and capital budget drafts put forward by Gov. Bill Walker's office last month, which the Legislative Finance Division is currently reviewing for analysis. Once it completes its report, Stedman said legislators will have a better idea of what affects the budget will have.
"That process is underway," he said.
Released on December 15, the FY 2019 budget proposes $4.7 billion in spending, or a total of $10.65 billion when taking the Permanent Fund dividend, federal grants and unrestricted funds into account. Capital spending this year has been suggested at $150 million in unrestricted general funds.
"The capital budget is pretty much a federal match budget to get federal highway money and airport money. It's a pretty lean budget," Stedman commented. He expected both budgets to pass the Senate without much change.
"The real point of discussion this winter will not be the operating budget. We'll be dispatching with that as soon as possible. It will be the restructuring of the Permanent Fund, and how we're dealing with the $2.5-2.8 billion deficit," he said.
Since a sharp drop in oil prices in 2015 the state has been running multibillion-dollar deficits each year, with decreased revenues outpacing cuts to the budget. The balance has been withdrawn from savings, leaving the Constitutional Budget Reserve with just under $3.1 billion at the start of the new year, according to the Treasury.
Without sales or income taxes in place, Alaska's government is uniquely dependent upon oil production royalties for its income. While unable to agree so far on the imposition of new taxes, the legislature and governor's office have increasingly found common ground instead on restructuring the state's Permanent Fund to allow diversion of a percentage of its value toward government operations.
Including a separate Earnings Reserve Account, the Fund's unaudited value as of November 30 was $63.3 billion. Competing versions of the percent-of-market-value (POMV) approach put forward last year by both chambers agreed on setting the percentage at 5.25 of the Fund's average value over a five-year period. A portion of that would continue to be used for PFD payments, with the rest covering operating expenses.
Although other tax items are due for discussion this session, a restructuring of the Permanent Fund would generate the greatest amount of revenue, which is why Stedman advocates taking that route first before considering other, smaller-yield taxes or fee increases.
"In order to fill that gap the money needs to come from somewhere, and there isn't enough in the saving accounts outside of the Permanent Fund to come anywhere close," he commented. "We need to deal with the Permanent Fund up front."
Among filings released this week ahead of the coming session, Stedman will introduce a joint resolution which would put a constitutional amendment forward for consideration. If passed by the House and Senate, SJR 9 would have a proposal on November's ballot allowing voters to weigh in on a Permanent Fund restructure.
Under Stedman's proposal, a POMV draw from the Fund would be capped at 4.5 percent, a percentage more in line with recommendations from the Alaska Permanent Fund Corporation and consultancies than the 5.25-percent figure. Withdrawals at that rate would be more manageable in the long-term, he argued, and inclusion into the constitution would better protect the Fund's assets from additional appropriations.
"The 4.5 percent cap would block the legislature from ad hoc extracting billions out of the Permanent Fund," he said.
Two of the 4.5 percent allowably drawn each year would specifically go toward individual dividend payments, with the rest either going back to the fund principal or toward essential government services, depending on the state's financial circumstances.
Under Article XIII of the Alaska Constitution, Stedman's resolution would need to be approved by two-thirds of each legislative chamber. The lieutenant governor would then prepare a ballot title and proposition summarizing the amendment, which would be placed on the next general ballot. This year's election is set for November 6, so the resolution effectively has until September 5 to make the ballot, the date by which the Division of Elections director is scheduled to certify it for printing.
The budget and state's future fiscal stability will be the session's primary concerns, and though Stedman expects little else will be taken up by lawmakers during the 120 days he was hopeful for progress on other issues. Speaking recently with constituents in Sitka, Petersburg and Wrangell, preserving municipal revenue sharing arrangements with the state was a common concern. He has been advising local municipalities to keep that high on their lists of priorities for legislators this year.
"We want to protect our revenue stream we have today, and our programs," he said. "It's an issue that is more sensitive to rural Alaska than it is to the Rail Belt."
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