Permanent Fund bill provision doesn’t account for inflation in limiting state spending

Alaska lawmakers are raising alarm over a provision of a bill that would cut Permanent Fund dividends and draw on fund earnings to pay for state spending. The provision limits state revenue when oil prices rise, and doesn’t allow the state to adjust for inflation.

This could have the effect of steadily eroding the amount available for government spending – from state aid for schools to capital projects to public safety.

An Alaska Permanent Fund Corp. sign in the office in Juneau, March 14, 2016. (Photo by Skip Gray/360 North)
An Alaska Permanent Fund Corp. sign in the office in Juneau. (Photo by Skip Gray/360 North)

Rep. Les Gara, D-Anchorage, said a law intended to stabilize government could instead undermine it.

“It has this sort of stealth provision to make sure legislative funding for schools and other services doesn’t even keep pace with inflation in the future — a sort of cap on state services,”

The bill limits the combined state government revenue from the Permanent Fund and the oil and gas industry. If inflation in Alaska in the next 35 years is similar to the past three and a half decades, then inflation-adjusted revenue would fall over time by two-thirds.

Once state oil and gas revenue reaches $1.2 billion, every additional dollar would be offset by a dollar cut in government revenue from Permanent Fund earnings. The $1.2 billion amount isn’t adjusted for inflation, under the bill.

Even some of the bill’s biggest supporters weren’t aware of the provision. They include Alaska AFL-CIO President Vince Beltrami. He said he still wants the bill to pass. But he said he’d be concerned if the lack of inflation works the way the lawmakers said it would.

“I do see that as being a concern,” he said. “But it’s like, you know, don’t let the perfect be the enemy of the good. I think it’s something that we can go back and fix in future legislatures.”

Beltrami said he spoke with legislators Wednesday urging them to support the bill, citing the benefit of reducing the state’s deficit.

It also faces opposition from some Republicans, who have an opposite concern. They say the legislature hasn’t gone far enough in reducing state government spending immediately. Rep. Lynn Gattis, R-Wasilla, said she could support the bill if Gov. Bill Walker vetoes enough from the state budget so that the total cut to government spending is $1 billion, about a fifth of the budget.

“We don’t mind being Alaskans and pitching in,” Gattis said. “And we think the (reducing the amount available for the) PFD is that thing we can do to help. But here’s what we do mind: You haven’t cut the largesse of government. Until  you do that, we’re not going to give up our money, and we’re going to squawk and we’re going to scream.”

House Speaker Mike Chenault, R-Nikiski, said he’s not sure there’s enough support in the House to pass the bill. The Senate passed its version on Monday.

Drawing money from Permanent Fund earnings for the state budget is the centerpiece of Walker’s fiscal plan. The legislature hasn’t passed any other new revenue measures proposed by Walker. It did pass cuts to oil and gas tax credits, but the cuts were much less than those Walker proposed.

The House Finance Committee has scheduled a hearing on the bill on Tuesday.

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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