The PFD debate will continue when the legislators return to Juneau

When legislators return to Juneau Jan. 21 they’ll be eyeball-to-eyeball once again with the elephant in the room – the Permanent Fund Dividend.

It’s an election year, and lawmakers again have to decide how big the 2020 dividend will be. If they rely on a formula in a statute that has been on the books for years, which many say is obsolete, the result will be a PFD of about $3,000 that will require $2 billion to fund. If the large dividend is agreed on, the only source of money to pay for it will be money remaining in the state’s savings account, the Constitutional Budget Reserve.

However, that money has been kept for emergencies, like an earthquake or fighting wildfires. If another savings account is used, the earnings reserve of the Permanent Fund itself, it would deplete money needed to sustain future PFDS as well as payments now needed to help support the state budget.

Whether the statute guiding the calculation of the dividend should be changed as well as the amount of the 2020 payment, are big-ticket items for the 2020 session, Senate President Cathy Giessel told an Anchorage business group last week.

Giessel made no bones about where she sits on the question: The large PFD can’t be afforded.

“Every senator supports the Permanent Fund and the PFD, but the question is how we preserve and the Fund if we continue with an oversized dividend based on a 40-year-old statute,” the senator said in remarks to the Resource Development Council. “This will put pressure on the dividend and the Fund.”

Giessel said the state can expect its ordinary revenues, still much of it from oil, to be about $2 billion a year. Under a new law that allows a draw from Permanent Fund earnings, about $3 billion in revenues can be anticipated. A formula restricts the draw to about 5 percent of the Fund’s realized (cash) income averaged over five years.

That makes $5 billion available for the state budget, about the amount needed for current spending. If $2 billion of this is taken to fund the large PFD only $3 billion is left for all state services, Goessel said. With K-12 education spending taking $1.2 billion of this, and Medicaid (a required federal program and pensions taking about $800 million, there’s not much left for services like public safety, fish and game management, and the university.

It will be tough enough to find money to fund even a smaller dividend. Goessel said savings were tapped last year to fund the $1,600 PFD because there weren’t enough general fund revenues to pay it. A separate savings account, the Strategic Budget Reserve, was essentially drained to pay the 2019 dividend, she said. Where the money will come from for the 2020 PFD is uncertain.

The Legislature also faces a need to find about $200 million to pay expenses for firefighting last summer and to supplement the state’s Medicaid budget, which the Legislature and Gov. Mike Dunleavy underfunded during the 2019 legislative session. There’s also no money for a state capital, or construction, budget, and an estimated $2 billion deferred maintenance tab is growing at a rate of about $100 million a year.

Faced with all this, Giessel said legislators will discuss new revenues this session, which will be another tough issue in an election year.

“I don’t disagree with the notion that people should feel some “ownership” (for public services),” but the initial tax conservation will be on modest proposals like an increase in the state gasoline tax, which at 8 cents-per-gallon is the lowest in the nation. It would be used to help pay for road maintenance, Giessel told the RDC.

Sen. Click Bishop’s proposal for a renewed state “school tax” is being met favorably by many legislators. The original school tax, a $10 annual “head tax” paid by all employed Alaskans, would be increases to $30 a year. It would bring in about $13 million a year, the senate president said.

Giessel said she opposed a state personal income tax because it would effectively apply to only half the population. As long as the PFD issue is unresolved this would have Alaskans paying an income tax that would essentially fund a PFD that substantially benefits the 50 percent of Alaskans who would pay no income tax.