Senate votes to cut Permanent Fund dividend to pay for state budget

Permanent Fund dividends would be cut in half under a bill the Senate passed Monday. It’s part of a plan to change the basis for funding state government from a dependence on oil revenues toward Permanent Fund earnings.  But the plan has its detractors.

Sen. Lesil McGuire, R-Anchorage, explains Senate Bill 114 to the Senate Finance Committee, March 22, 2016. The bill reflects her vision for how the Permanent Fund and other state financial accounts should be managed. (Photo by Skip Gray/360 North)
Sen. Lesil McGuire, R-Anchorage, speaks about Permanent Fund legislation in March. (Photo by Skip Gray/360 North)

Bill supporter Sen. Lesil McGuire, R-Anchorage, says the bill would make Alaskans more invested in the state budget, while providing a sounder, more predictable basis for funding government services.

“This bill is the most important thing that I will do in my 16 years and I would dare to say anyone here in this room will do in their political career,” McGuire said. “It is the main step toward stabilizing Alaska’s future.”

The bill would draw as much as 5.25 percent from the Permanent Fund earnings account each year. And it would cut the PFD from its current level of roughly $2,000 to $1,000. After three years, dividend checks would be based on a combination of 20 percent of oil royalties and 1.05 percent of the Permanent Fund. It should still equal about $1,000.

Sen. Anna MacKinnon, R-Eagle River, supports the bill. She said it’s a financially responsible way to provide necessary services. Without changes, the state runs the risk of exhausting its savings – imperiling all dividends – in a few years.

“The bill before you maintains our savings account. It increases the longevity of how long those savings accounts can be around for future generations,” MacKinnon said. “It secures the corpus of the Permanent Fund.”

Sen. Bill Wielechowski, D-Anchorage, cited several reasons for opposing the bill. He said he’s promised voters he’d protect their dividends, and he said the change isn’t necessary.

“People say, ‘Well, it’s not really a tax. It’s just cutting the dividend.’ It’s semantics in my opinion,” Wielechowski said. “And I think if you were to ask your constituents, and I know if I ask my constituents – all they know is, it’s $1,000 out of their pockets.”

Sen. Mike Dunleavy, R-Wasilla, said he opposed the bill because the state could make deeper cuts to the budget next year, but the pressure to make those cuts could be reduced if the bill becomes law.

“There’s no doubt that the math would indicate over the long term that we’re going to have to do something structurally,” Dunleavy said. “I just think we’re probably a year or two premature on this.”

The Senate voted 14-5 to pass the bill.

Gov. Bill Walker applauded the vote, but he noted a concern about whether the impact of the budget changes are balanced. He’s proposed other measures to raise revenue, including introducing a personal income tax. While the PFD changes would primarily affect middle- and low-income Alaskans, the income tax would fall most heavily on higher-income residents.

The House version of the Permanent Fund bill is up for a hearing in the House Finance Committee on Tuesday, June 14.

Editor’s note: The timing of the House Finance Committee’s hearing on its version of the Permanent Fund bill has been corrected. The hearing is scheduled for Tuesday, June 14, not Monday, June 13. 

Andrew Kitchenman

State Government Reporter, Alaska Public Media & KTOO

State government plays an outsized role in the life of Alaskans. As the state continues to go through the painful process of deciding what its priorities are, I bring Alaskans to the scene of a government in transition.

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