Update March 28, 10:55 a.m.: The House Finance Committee voted 6-5 to change the source for the full PFD from the Alaska Permanent Fund’s earnings reserve account to the Constitutional Budget Reserve, a savings account that requires a three-quarter vote of both chambers to tap. The underlying amendment then failed, with several Republicans complaining that the change essentially made it impossible to fund the full dividend, on a 3Y-8N vote.
The House Finance Committee is poised to break a rule that had once been a bright line that legislators were unwilling to cross with a budget amendment that proposes paying out a full dividend by overdrawing the Alaska Permanent Fund.
House Finance Committee co-chair Rep. Neal Foster, D-Nome, proposed the move on Wednesday as the committee began amending the state’s operating budget. The proposal involves overdrawing the Alaska Permanent Fund’s earnings reserve account by about $800 million to pay a dividend well north of $3,000. The committee adjourned before a final vote could be taken on the measure, but it appeared that there was enough support to pass it.
Doing so, however, would violate the spending cap approved by legislators in 2018, which was intended to make the Alaska Permanent Fund’s investment income a dependable source of revenue to fund the government and pay dividends. Instead of drawing 5% of the fund’s overall market value, the move would draw about 6.1%. It comes at a time when fund managers and budget analysts have warned that the fund is perilously close to running out of money under the status quo spending, let alone overspending, in a matter of years.
At Wednesday’s hearing, Legislative Finance Division Director Alexei Painter confirmed that was still the case and that spending $800 million would reduce future investment earnings by about $50 million yearly.
Foster acknowledged the conflict between the two laws but said that he and his constituents favor the full PFD law.
Like the PFD and BSA laws, the spending cap on the Alaska Permanent Fund is essentially an optional guideline that legislators can ignore with a simple majority vote. Like the PFD and BSA, it only works as long as legislators abide by the law, which up until Wednesday, seemed like a line legislators were unwilling to cross. That’s because, as many have pointed out, once you break the seal on the fund there’s nothing stopping legislators from raiding the account.
To some on the House Finance Committee, the move was unthinkable.
It prompted one of the more memorable moments in House Finance Committee history when Fairbanks Republican Rep. Will Stapp responded with an amendment that would balance the budget not by overspending the Alaska Permanent Fund but by cutting it. Namely, it would have eliminated the entire criminal justice system — closing prisons, courts, and the Alaska State Troopers — and made sizable cuts to everything else.
“That would effectively liquidate the entire corrections budget, close all prisons, release all prisoners, and of course, I would have to add conceptual language for our executive to give amnesty to everyone currently incarcerated in our prison system because we wouldn’t have any jails,” he said, adding he would also eliminate the court system and the Department of Public Safety. “Because if you don’t have any prisons, you don’t need any courts … If you have no courts and have no prisons, you certainly don’t need public safety officers because you don’t need to put anybody in jail.”
Of course, Rep. Stapp was making a point and ultimately withdrew the amendment. But not before giving a fierce warning to his colleagues that there is no easy or magical way to pay out a dividend while avoiding the hard decisions.
“The reason I think this is a bad idea is that I tend to think that we should probably have corrections, a court system and public safety,” he said, noting he was clear on the campaign trail there isn’t an easy way to get to a full PFD. “In order to pay a statutory dividend, this state either has to reduce its expenditures on government or tax people. Those are your two options. You have no other options. If you want to reduce $801 million out of the state’s operating budget that literally means the entirety of those budget items I listed off. I believe the scope of the government can absolutely be reduced. I don’t believe you can cut a billion dollars out of it. I don’t believe you can cut $801 million out of it because you would have catastrophic consequences.”
In closing, he said he would not entertain “unbelievable levels of irresponsibility in terms of budgeting” and would vote against the underlying amendment.
The point seemed lost on many of his colleagues, as Republican after Republican piled on in support of the full PFD. Several legislators, including Reps. Mike Cronk, Julie Coulombe and committee co-chair DeLena Johnson, acknowledged the risk of overdrawing the dividend, but essentially said that their campaign promises on a dividend were more important. Some suggested that paying out a dividend and pushing the state closer to financial peril would be the best way to force action on a fiscal plan, seemingly overlooking the fact that they are in the Majority and the movement of a fiscal plan is largely their responsibility.
As the votes in favor of the move ticked toward a majority, with all the Republicans save for Rep. Stapp joining Rep. Foster in supporting the move, it sparked incredulity from the Minority members who called the move reckless and dangerous.
“Am I the last conservative here? Am I the last conservative in this body?” asked progressive Anchorage Democratic Rep. Andy Josephson as he and the other members of the House Minority outlined their opposition to the amendment.
But then something unexpected happened.
Dillingham independent Rep. Bryce Edgmon, who had up until Wednesday been a reliable vote against overspending the Alaska Permanent Fund and against larger dividends, said he had enough. He warned his colleagues they were walking the state into financial calamity but that if they were so deadset on doing so, he wouldn’t be saving them from themselves this time.
“I couldn’t think of a more irresponsible vote I could take,” he said. “But you know what? I’m going to help you guys catch the car. I’m going to vote yes, and we’re going to see where this is going to go.”
That prompted an at-ease from Rep. Stapp, followed by a long break. They eventually returned with Rep. Foster, the maker of the underlying PFD amendment, offering a conceptual amendment that would cut the $8 per barrel oil tax credit to make a similar point about the move needed to balance the budget with a dividend. Since the credit is foregone revenue and not something actually outlined as an expense in the budget, he ultimately withdrew the amendment.
As the reality of the situation seemed to dawn on the Republicans, the committee then adjourned for the night with the plan to return at 11 a.m. today.
