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Court ruling on Permanent Fund dividend cut removes one distraction

  • Author: Dermot Cole
    | Opinion
  • Updated: December 2, 2017
  • Published August 29, 2017

The Alaska Supreme Court has kept the power to appropriate Permanent Fund income right where it has always been — not with legislators and governors of yesteryear, but with those in office today responsible for setting policy on taxes, spending and services.

In its unanimous ruling last week, the court rejected a lawsuit challenging Gov. Bill Walker's veto of half of the 2016 Permanent Fund dividend.

Sen. Bill Wielechowski, along with former Sens. Clem Tillion and Rick Halford, alleged in the lawsuit that the dividend formula was not a typical annual appropriation, subject to a veto by the governor.

The court disagreed. It didn't help the challengers any that hundreds of legislators and the last eight governors have placed annual appropriations into the budget to pay dividends, totaling more than $21 billion, treating them as typical annual appropriations.

The decision does away with one distraction from the fiscal debate.

Alaskans created the Permanent Fund through a 1976 constitutional amendment, establishing a dedicated fund that could not be spent. The amendment said earnings of the account would be subject to appropriation by the Legislature.

The Legislature approved a plan to provide dividend checks that began in 1982, but it has never been in the Constitution.

"Absent another constitutional amendment, the Permanent Fund dividend program must compete for annual legislative funding just as other state programs," the court said.

It is long established that one Legislature cannot dictate to future legislators and that dedicated funds are a no-no.

The Alaska Constitution contains a strong ban on dedicated funds because the delegates who wrote the document nearly 60 years ago had heard horror stories about the ways in which dedicated funds had made government operations inflexible and unresponsive to changing circumstances.

The Permanent Fund, with the requirement that the principal be placed in "income-producing investments," is a voter-approved exception to the rule.

A year ago, in one of the most important decisions of his administration, Walker cut the size of the Permanent Fund dividend by half. It was a $700 million step toward dealing with the state's multibillion-dollar financial crisis.

Walker's action cleared the way for the 2017 Legislature to reduce the dividend to $1,100, abandoning the formula in the law. By large bipartisan majorities in both the House and Senate, legislators opted for a lower dividend.

They approved spending $760 million on dividends, instead of nearly twice that amount. It was a sensible action, given the precarious nature of state finances.

The vote came as part of the overall budget bill, which was approved 16-1 in the Senate, with Sens. Wielechowski, Berta Gardner and Mike Dunleavy excused. Sen. Shelley Hughes voted no.

In the House, the vote was 31-8, with Reps. David Eastman, DeLena Johnson, Mark Neuman, George Rauscher, Lora Reinbold, Colleen Sullivan-Leonard, Cathy Tilton and Tammie Wilson opposed. Rep. Steve Thompson was excused.

This is a decision that no one predicted three years ago. Of course, no one predicted three years ago that oil prices would collapse and the state would start running a deficit of millions of dollars a day.

The action on the dividend this year, plus the court decision, sets the stage for a similar dividend amount in 2018. This is part of a compromise, but more has to follow.

We cannot afford to consider the Permanent Fund in isolation. If Alaskans want to preserve a dividend of any amount, the state needs a financial plan, assembled from unpopular pieces.

No one has offered a credible proposal that preserves most state services, continues the dividend with no cuts and allows us to continue avoiding state taxes.

Most legislators who voted against the budget or missed the vote will say they want a complete dividend. They will be less forthcoming about identifying which schools to close, which roads to stop plowing and what taxes to impose.

Other candidates who are not in office but have visions of 2018 will surface in the months ahead with extravagant claims about restoring the dividend and vague talk about budget cuts, getting more from the oil companies and instituting new taxes.

I will believe they are not grandstanding only when they identify the budget cuts and taxes they support to make the math work. It can't just be about squeezing more money from oil companies or government efficiencies, just as it can't be all about budget cuts.

But one thing we can expect next year is a surplus of empty talk and distractions.

Columnist Dermot Cole can be reached at dermot@alaskadispatch.com. 

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

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