Senate $12 billion decision a puzzler

The Alaska Senate’s decision to move $12 billion in available cash into the corpus of the Permanent Fund is either a great idea or a reckless “our-way-or-the-highway” political maneuver.

The $12 billion was in the earnings reserve account of the Permanent Fund. There it was part of an $18.4 billion pool of money available to meet state needs in excess of revenues, most of which come from oil and gas taxes and royalties.

Money in the reserve account could be spent by majority vote of the Legislature. In the Permanent Fund’s corpus it can’t be spent without amending the state constitution.

On its face the maneuver looks like a cautious one aimed at protecting money for the future. It certainly seems to do that, but the state has many unmet needs that should be addressed as soon as possible

Since various versions of the draft state budget include measures that would cut deeply into education funding and curtail sailings of state ferries, among other things, the state’s near-term needs seem substantial.

In recent years the deposits spun off from the Permanent Fund’s corpus to the earnings reserve account have been about $4 billion a year. The total balance in the Permanent Fund, including earnings reserve, is $64.5 billion.

The good news is that the additional $12 billion in the corpus should mean increasing amounts moved annually to the earnings reserve account. And that should serve as a braking mechanism to keep the Legislature from dipping too deeply into the earnings reserve account in any one year.

Now, I must confess that I was an English major and my knowledge of high finance is appropriately low. But it does seem premature to take that $12 billion off the table when part of it could be crucial to meeting the state’s near-term needs.

I take some comfort from the fact that two of the cooler heads in the Senate, Natasha von Imhof of Anchorage and Bert Stedman of Sitka, both Republicans, are enthusiastic backers of the maneuver.

The Senate-approved budget includes $4.3 billion in unrestricted general fund spending ($258 million more than last year) and $1.94 billion to pay each of us a $3,000 permanent fund dividend.

Stedman says the budget “protects the Permanent Fund for future generations of Alaskans, grows the economy, and keeps Alaskans safe.” Stedman says the committee he co-chairs, Senate Finance, “produced a budget Alaskans can be proud of.”

Von Imhof says the $12 billion transfer from earnings reserve to the permanent fund corpus “will force the Legislature to have a conversation about a sustainable dividend calculation moving forward.”

Reading between the lines, one might conclude that Governor Mike Dunleavy primed the Alaska public to expect a triple dividend this year to make up for being shorted during the years of Bill Walker’s governorship. Anything less would cause widespread disappointment.

Recent permanent fund dividends have ranged from $1,022 in 2016 to $1,600 last year. And to add to everyone’s frustration, the $1,022 checks in 2016 were what was left after Governor Walker cut them in half to free up more money for state spending. He was not quite as parsimonious last year, but the $1,600 in 2016 was still low compared to the $2,072 checks in 2015.

Let’s hope that the big checks do arrive this year and that the Senate’s decision to move $12 billion into the fund corpus proves a good one.