Governor calls for back payments on PFD

Gov. Mike Dunleavy cleared up any mystery as to whether he will seek payments for prior-year underfunded Permanent Fund dividends Wednesday. In a press conference in Juneau the governor said he will propose paying what would have been paid in“fully-funded” PFDs in 2016, 2017 and 2018 in addition to fully-funded dividends in 2019 and onward.

The money would come in staggered payments over three years beginning this year, Dunleavy proposed.

Fully-funded refers to a statute that guides how the PFD is calculated. It is essentially half of the Permanent Fund’s realized, or cash, income for a year averaged over five previous years. However, the decision on what to really pay is up to the Legislature, which has the constitutional power of appropriation.

The proposal is to combine what would have been paid in the 2016 dividend, the year Gov. Bill Walker vetoed part of the PFD funds because of the state’s financial emergency, with the PFD that will be paid out this year, in 2019.

This would be repeated next year when the argued 2017 “short-funding,” this time by the Legislature, would be combined with the 2020 PFD. The same process would occur in 2021, when the underpayment for 2018, again by the Legislature, would be combined with the 2021 PFD.

The estimated amount for the 2016 back-payment is $683 million, and while the 2019 dividend has not yet been calculated it is estimated to total roughly $1.9 billion. That would result in about $2.58 billion in PFDs in the economy later this year.

The amount paid in 2020 would total approximately $2.72 billion and in 2021 about $2.75 billion, but it could be more if the PFD for those years is higher.

“This will absolutely cause a bump in the economy. People use PFDs to pay fuel bills, fix cars and buy things like snow machines,” Dunleavy said. It will be good for business owners, he said.

State revenue Commissioner Bruce Tangeman said the back payments would total about $2.3 billion and the money would be drawn from the Permanent Fund’ earnings reserve account over three years.

As of Dec. 31 the earnings account held $16.7 billion, according to the Permanent Fund, Tangeman said. Because the back payments would be drawn over three years the funds would remain in the reserve account and earning money until paid out, he said.

Dunleavy’s proposal does not upset the percent-of-market-value calculation for annual withdrawals from Permanent Fund earnings authorized last year in Senate Bill 26, Tangeman said. The POMV draw for Fiscal Year 2020, which would also fund the dividend paid later this year, is estimated at $2.9 billion.

From that total about $1.9 billion would be paid for the 2019 PFD and $1 billion would go to support the state budget. The back-payment amounts paid would be in addition and would not be part of the POMV draw, Tangeman said.

Senate Bill 26 became effective only this year and affects only money used for FY 2020 expenses, he said. The payout for the prior-year PFD underpayments do not fall under SB 26 and are not included in the POMV, he said.

“Our intent is to follow the law. The POMV is now the law,” and it will be respected, the governor said.

There have been concerns that Dunleavy would argue that even PFD funds going forward would not be part of the POMV, that it is a “transfer” of funds, and not an appropriation, but the governor has decided not to pursue this interpretation, for now.

Dunleavy also said he will pursue a constitutional dedication of the PFD to guarantee it, similar to a proposal made by Sen. Bill Wielechowski, D-Anch. Currently the PFD is an appropriation by the Legislature similar to appropriations made for state agencies.

The plan to fully-fund PFDs from now on under the statute creates a state budget problem. If the plan put forth by former Gov. Bill Walker, for a dividend in the range of $1,200, were followed, there would be about $1.9 billion available for the state budget and about $1 billion for the dividends;

Dunleavy’s proposal flips the ratio, paying $1.9 billion for dividends from the POMV and $1 billion toward the budget. The extra $900 million in PFDs creates more than half of the $1.6 billion deficit Dunleavy has estimated for FY 2020. Much of the remaining deficit is due to the recent drop in oil prices.

Legislative leaders have not yet comment on Dunleavy’s plan but they are known to be unhappy with the larger dividend because it will require either massive budget cuts or new revenues, from taxes, to offset the cuts, or more money drawn from state reserves.