Legislators fighting PFD cut explain their ideas to close budget gap

Anchorage Permanent Fund Dividend Office 2016 03 14
Alaskans file their Permanent Fund dividend applications in downtown Anchorage in March 2016. Sen. Bill Wielechowski would offset reversing the PFD cut by raising oil and gas taxes, while Sen. Mike Dunleavy wants to start with targeting spending cuts. (Photo by Rachel Waldholz/Alaska Public Media)

When Gov. Bill Walker vetoed half the funding for Permanent Fund dividends, he said it was necessary as part of a comprehensive fiscal plan he’d like the legislature to adopt. Two senators would like to reverse the cut through different methods – a lawsuit and a new piece of legislation — and they have different ideas on how they’d like to fix the state government’s budget problem.

Anchorage Democratic Sen. Bill Wielechowski joined with two former lawmakers to pursue a lawsuit arguing that Walker didn’t have the authority to veto the dividend money.

Instead, he’d like to fix the state’s $3.2 billion fiscal gap by raising the share of oil and gas revenue that companies pay the state.

“We’ve historically gotten 29 percent” of all oil and gas revenue, Wielechowski said. “Now we’re getting 8 percent. And if you were to close that gap to the full 29 percent — which by the way is what they pay in North Dakota and Texas –your deficit is virtually eliminated.”

Those numbers and percentages line up with figures Robin Brena, a longtime oil and gas attorney and Walker transition team member, wrote about in recent columns in the Alaska Dispatch News.

Oil company executives have warned against changing the tax structure, saying their investment in the state relies on tax stability. Wielechowski acknowledged the legislature shouldn’t drive companies out of the state, but he noted these companies operate in states with higher taxes.

The PFD veto of $666 million covered a little more than a fifth of the budget gap.

Wasilla Republican Sen. Mike Dunleavy also would like to reverse the dividend cut, through a bill he hopes the legislature will pass soon after the session starts in January. He’d like to start the effort to close the fiscal gap by setting a target for cutting government spending. He’d like a minimum cut of $500 million over the next two years.

“This is where everyone gets hung up,” Dunleavy said. “Well, what would you cut? Hey, this needs to be a discussion – what we’re going to cut. I think there should be more agreement first though, on what size of a reduction we should have.”

Dunleavy said the cuts must include some Medicaid and education spending. He says both legislative chambers and Walker should reach a budget agreement that also includes spending from Permanent Fund earnings, but leaves the PFDs alone. He said the agreement should also realistically include new revenue and cut business tax credits.

“Unless we all roll up our sleeves and we all look at each other and say, ‘You know what? We’re going to be giving up stuff and we’re not going to be happy about it’ – it’s the only way we’re going to get this thing back on course,” Dunleavy said.

Walker also said the state must use different strategies to close the budget gap. But he said the cut in dividend funding is necessary to preserve PFDs into the future.

“Somebody had to be the first one to step out and say, ‘You know what? I’ll take the heat.’ And now that I’ve taken all the heat, I’m hopeful that legislators will be more comfortable approaching some of the things that I’ve had to do unilaterally, which was not my preference,” Walker said.

State Revenue Commissioner Randall Hoffbeck said the budget will need to tap Permanent Fund earnings next year, since the state’s other major savings account – the Constitutional Budget Reserve – won’t be able to cover another year of deficit without being fiscally  imprudent.

Economist Mouhcine Guettabi said the state government must consider the economic harm caused by cutting residents’ spending through the PFD cut with the need to close the budget gap. He co-wrote an Institute for Social and Economic Research report that found that PFD cuts would have a larger short-term impact in lost income than other options to close the gap. But broad-based state spending cuts would cost more jobs.

“It seems like budget cuts, coupled with broad-based taxes and a look at every other revenue source is going to be needed in order to achieve some sort of a fiscal path that’s sustainable,” Guettabi said.

Guettabi said the PFD funding veto was the primary lever Walker had to achieve savings after the Legislature passed the budget.

Not everyone agrees that the state government should close the entire fiscal gap. Senate Finance Committee Co-Chairman Pete Kelly, R-Fairbanks, said leaving a smaller budget gap would keep downward pressure on government spending growth.

“If you put a bunch of taxes and Permanent Fund dividend and new revenues into the state government, what you’re saying is government is just fine the way it is,” he said.

Kelly is particularly opposed to new taxes.

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