Senate Finance co-chair says proposed spending cap that excludes PFD is 'nonsensical'

Bills under consideration in the Legislature to cap state spending are not addressing the main challenges Alaska is facing, said Sitka Sen. Bert Stedman, co-chair of the Senate Finance Committee.

“We don’t have a spending-side problem; we have a revenue-side problem,” said Stedman, who also represents Wrangell and the rest of Southeast except for Juneau, Haines, Skagway and Gustavus. He is in his 20th year in the Legislature.

The senator pointed out that the latest spending-cap proposal advanced by an Anchorage Republican would exclude the Permanent Fund dividend from the limit. “We have $2.5 billion into a dividend this year, and the cap won’t even take that into account. So that’s nonsensical to start,” Stedman said.

The PFD consumes about one-third of total state spending for the current fiscal year.

An additional problem, Stedman said, is that the spending-cap proposal limits the state budget to a percentage of the gross domestic product for Alaska, which would make it harder to respond to economic swings.

That number rises and falls mostly on the value of oil, and is detached from public services such as school budgets, highway maintenance needs and employee health insurance costs.

“I’m not enthusiastic about that concept, quite frankly,” Stedman said.

The proposal moved out of the House Judiciary Committee on Feb. 27, but faces two more committees before it could reach the full House for a vote.

And if it passes the House, the Senate will have its say. “The Finance Committee will most likely have a different viewpoint,” Stedman said.

The state already is restricted in what it can spend each year, he said. “What keeps spending under control is the 5% coming out of the Permanent Fund,” he said, describing the state law that limits the annual withdrawal of Permanent Fund earnings to 5% of the market value of the fund. That annual draw goes into the state general fund to pay for public services and the dividend.

“As long as we don’t break that, we have a revenue ceiling. That’s your cap right there,” Stedman said.

After oil revenues and Permanent Fund earnings, all other taxes and fees collected by the state amount to about 6% of total state revenues.

The main problem with the budget for the next fiscal year, now under consideration by lawmakers, is not growth in spending on services but a $500 million deficit created from a $2.5 billion dividend payout to residents, Stedman said.