Palmer chamber hears case for PFD budget fix

PALMER — Alaskans must either accept some changes to the way the Permanent Fund Dividend is managed or risk losing it altogether, a representative from a state advocacy group told local business owners Wednesday.

While the concept of using some portion of the fund’s earnings reserve to fund government has been in the public sphere for years, the maneuver has taken on increasing urgency this year as the state faces a roughly $3 billion budget gap. Officials blame declining oil revenues caused by decreased oil production and slumping prices of the volatile commodity, which accounts for nearly 90 percent of the state government’s revenue.

Officials have previously said laying off every state employee wouldn’t solve the problem without sparking a recession. Taxes alone won’t solve the problem without impacting the economy. The state has an $8.21 billion savings account — known as the Constitutional Budget Reserve — which will last only a couple of years.

Without a combination of measures, including using some of the earnings reserve to fund the government, the savings account will be exhausted November 2018, leaving state officials with no other option, said Cheryl Frasca, a long-time public finance worker and representative from the group Alaska’s Future.

The group is a coalition of business and union groups advocating for using the permanent fund’s interest earnings to close the gap. They’ve blanketed airwaves and Youtube channels with ads asking for a PFD-based fix.

“So for all of us that have been waiting around for us to fall over the fiscal cliff, following this discuss: this is the year.” Frasca said during remarks at Wednesday’s chamber meeting.

The savings account could keep the state afloat in the interim period, but tough choices loom ahead, Frasca said.

“After that, it’s reasonable to think they’ll have to go after the earnings of the Permanent Fund because that is really the only financial asset that’s there to help pay for state services,” she said. “Because you can’t cut your way down to that level and have a reasonable society, frankly.”

Cutting about $500 million in expenditures (or raising $500 million in revenue) would move the drop-dead date, at which the Constitutional Budget reserve is spent (and state officials must use the earnings reserve) at most a few months, from November 2018 to early 2019, Frasca said.

“The concern of Alaska’s Future is that we can have a nice dividend for three years, and then there’s no dividend,” she said.

By way of contrast, SB 114, proposed by Alaska Sen. Lesil McGuire (R-Anchorage), would push the drop-dead date out to 2022, which might be enough time for oil prices to recover, or for the economy to diversify enough to take the hit, Frasca said. Plans proposed by Gov. Bill Walker, and a plan proposed by Alaska Rep. Mike Hawker (R-Anchorage), HB 224, would essentially postpone the drop-dead date indefinitely, Fracas said. Both McGuire’s and Hawker’s plans would restructure the Permanent Fund Dividend into an endowment, meaning projected payouts would be based on earnings. Those earnings would then be used to fund the government and produce smaller PFD checks.

Walker administration officials have suggested replacing the earnings reserve with the oil royalties responsible for declining revenues.

That drew some pointed questioning from chamber member Jeff Johnson, who pointed out that revenue projections for the permanent fund were based on an assumption of investment returns. If the fund’s investments lost money for a single year, that could pose unforeseen problems for the annual check or for the government or both. The use of the PFD should be tied to a legislative requirement to produce a budget with matched revenues and expenditures to get the public to buy in, Johnson said.

“I think the biggest problem with the public in Alaska — and I think the public in the United States — about Juneau or Washington is that we don’t trust the people that go there,” he said. “It seems like all they want to do is spend money.”

All of the models presented rely on some assumptions, Frasca said. She agreed that public trust in elected officials was low. However, doing something soon would make it easier to move ahead, Frasca said.

“If we start now, take action this legislative session, it will make a significant difference to the choices that face future state Legislatures,” she said.

Contact reporter Brian O’Connor at 352-2270, brian.oconnor@frontiersman.com, or on Twitter @reporterbriano.