In his recent commentary, Vic Fischer said the governor’s proposed budget cuts “would radically transform Alaska into an impoverished state.” A delegate to the 1955 Constitutional Convention, Vic has seen our ups and downs and really knows.
When the governor announced his budget cuts, people quickly recognized the enormous damage that would be caused. They turned out in droves at the town hall meetings held by the Anchorage caucus and at the House Finance Committee hearings in hub communities around the state. At the Anchorage Legislative Information Office, the line of people wanting to testify extended across the parking lot.
Overwhelmingly, people protested Gov. Mike Dunleavy’s massive cuts to essential public services. Most were willing to forego supersized dividends, especially for education. Many also called for new sources of revenue.
In response, the Legislature has done well setting its own course and staying that course. Starting with last year’s budget, rather than Dunleavy’s, the House has developed its own operating budget and transmitted it to the Senate. There were some cuts, but key services identified by the public were protected.
Like the House, the Senate also is working independently. The Senate Finance Committee has proposed pieces of a plan – dubbed by Sen. Natasha von Imhof as “the grand bargain” – that could resolve several competing interests and move the state to a solid financial foundation. Their plan provides supersized dividends of $3,070 per person this year with an operating budget of about $1.7 billion, less than the House but still avoiding the slashing cuts of the governor’s proposal. Next year, the state expects to be solvent.
How is this possible? The key is an immediate transfer of $12 billion from the earnings reserve to the corpus of the Permanent Fund, where it is protected by the Constitution. The Fund is well invested. Based on its history, the added income generated by an immediate $12 billion increase in the corpus would, by the start of next session, increase the earnings reserve fund enough to provide the $3 billion required to comply with the Permanent Fund sustainability system created under Senate Bill 26 last year.
Built on endowment systems used by many institutions, that law stabilizes draws from the earnings reserve of the Permanent Fund and assures that draws are sustainable. This would also apply to the dividend – if it were structured as part of the system.
Recently, the value of the Permanent Fund has trended upward. Consequently, revenue for state expenditures under the system is higher than expected – $2.9 billion this year and $3 billion next. As the Permanent Fund grows, annual revenue will grow and people will see their dividends increase. Paying dividends from PFSS revenues should heighten public support for long-term measures to protect the Permanent Fund, such as adequate inflation-proofing and additional transfers into the corpus of the fund. Former Gov. Jay Hammond would have been pleased with the concept.
The Senate Finance Committee plans to structure the dividend by making it a percentage “split” of annual revenue produced by the system, thus creating a stable, predictable annual dividend.
Perhaps most important, incorporating a split in the system would take the dividend out of the political arena, where candidates are elected on dividend promises. This Legislature can stop that! All things considered, with a Legislature reluctant to impose taxes, the Senate’s proposed “grand bargain” is not a bad alternative. The House appears to agree.
Delay and uncertainty are costly. Investors hesitate. But responsible, timely and tough legislative decisions will release a well of pent-up economic energy and give Alaska a bright and prosperous fiscal future.
Janet McCabe and her family have lived in Alaska since 1964. Her education and experience are in community planning with a specialty in population projection. She is actively involved in several nonprofit organizations, including Alaska Common Ground and Commonwealth North.
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