A state House committee last week held its first hearing on a bill intended to settle the Legislature’s biggest annual political battle: The amount of the Permanent Fund dividend.
The bill, sponsored by Rep. Dan Ortiz, who represents Ketchikan, Wrangell and Metlakatla, would amend state law so that 75% of the annual draw on Permanent Fund earnings goes toward paying for schools and other public services, with 25% designated for the PFD.
“Tonight, we’re going to open a can of worms,” Chairman Ben Carpenter, of Nikiski, said at the March 1 meeting of the House Ways and Means Committee.
Ortiz’s proposal, one of several before legislators this year, would produce a projected dividend for this fall of about $1,300 per person. That would be close to the average of the past decade before last year’s record-setting $3,284 PFD driven in part by election-year politics and covered by a spike in oil revenues after Russia’s invasion of Ukraine pushed prices to near $128 a barrel at its peak last summer.
By 2032, under Ortiz’s bill, as the Permanent Fund continues to grow, the dividend would increase to $1,650 per person, according to a projection produced by the nonpartisan Legislative Finance Division.
Under those projections, the state budget would balance and the Permanent Fund would continue to grow.
“The purpose of this bill is to settle the age-old debate” over the size of the dividend, Ortiz told the committee. “It’s simple and, most importantly, it’s sustainable.”
The annual draw on Permanent Fund earnings — limited each year to 5% of the fund’s market value — is the single largest revenue source for the state general fund budget, which pays for public services and the dividend. The Legislature started drawing on the fund five years ago, after declining oil production and more than a dozen years of budget deficits forced the decision.
The Legislative Finance projections for Ortiz’s bill are based on long-term assumptions of oil prices around the mid $70s per barrel, which is several dollars less than this week, a small uptick in North Slope oil production and the Permanent Fund’s own forecast for investment earnings.
The House Ways and Means Committee will take up other PFD legislation this week as lawmakers have said they would like to resolve the issue of setting a new dividend formula in law. Settling the issue, however, has been contentious in past years, and there is no guarantee lawmakers will be able to agree on a formula this year, either.
Lacking a political compromise on a new calculation, the size of the dividend is set at the end of each session based on available funds and finding enough votes for passage.
The Legislature and governor have not followed the 1982 formula in state statute since 2016, when it became clear the treasury could not afford the large dividends it would generate — close to $4,000 this year.
Gov. Mike Dunleavy, who won reelection last November while campaigning for the so-called “full dividend,” has proposed a budget for the state fiscal year that starts July 1 with a PFD of close to $4,000. However, his budget does not balance without new revenues. The governor has declined to specify where the money could come from.
The governor’s budget does not include any additional funding for public schools, which is emerging this year as a priority for many legislators. The state has not increased education funding in more than six years.
In presenting his bill to the committee, Ortiz noted “this bill will allow us to balance our budget without needing to come up with new revenue sources.”
Setting the dividend at 25% of the annual Permanent Fund withdrawal would make more money available for funding to local school districts, construction and maintenance at public facilities statewide and other spending needs, Ortiz said.
Though some legislators prefer a 50-50 split of Permanent Fund earnings, which would produce a PFD of about $2,600 this year, the budget would not balance without new revenues to cover the expense, Ortiz pointed out at the committee hearing.
Moving to a 50-50 split would cost an additional $900 million for next year. Rather than raise new revenues, the Legislature could cut the budget by the same amount, which would be about 20% of all non-dividend spending.
As long as legislators do not exceed the annual 5% limit on Permanent Fund withdrawals, the savings account, which totaled about $77 billion as of March 2, is projected to reach $100 billion by June 30, 2032, according to the corporation’s latest projections.
At $100 billion, the fund would spin off almost $4.5 billion for public services and dividends that year. Under Ortiz’s bill, and assuming a stable population, that would produce a dividend in 2032 of almost $1,800 per person.
Several legislators have proposed putting the PFD into the state constitution. Ortiz proposes rewriting the formula in state law, not enshrining it in the constitution.
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