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Gov. Walker's Permanent Fund bill faces defeat in House

  • Author: Nathaniel Herz
  • Updated: June 17, 2016
  • Published June 16, 2016

JUNEAU — A top House Republican's compromise bid to restructure the Permanent Fund and reduce the state budget deficit failed Thursday, leaving Gov. Bill Walker's hopes of comprehensive financial reforms hanging by a thread.

The new version of Senate Bill 128, crafted by House Finance Committee co-chair Steve Thompson of Fairbanks, promises $1,500 dividends for this year and next year, compared to a guaranteed $1,000 for three years under the legislation that passed the Senate 14-5 last week.

Thompson said in an interview that at one point, his proposal had the six votes it needed to advance out of the 11-member finance committee in a Thursday afternoon meeting.

But some of the committee members — he wouldn't say who — abandoned their support, he said. That forced a delay as Thompson walked in his suit through lawmakers' sweltering Juneau office building late in the day, searching for one more vote.

He never found it, forcing him to adjourn the meeting without taking action.

The finance committee is scheduled to reconvene Friday morning, but Thompson and the administration of Gov. Bill Walker — who originally proposed the Permanent Fund legislation — will have to change someone's mind if they want the bill to move to the House floor, where 21 votes will still be needed to pass it.

"All I have is five. It takes six," Thompson said, referring to the number of finance committee members he needs to get the legislation to the floor. "This is the bill that would have helped Alaskans into the future. I'm very disappointed."

The Legislature has spent five months in Juneau without reaching a consensus on the Permanent Fund bill — four months in an extended regular session, with a subsequent 30-day special session that expires next week.

SB 128 is the centerpiece of Walker's package to reduce Alaska's $3.2 billion deficit, and he said this week that he'd likely force another special session if the legislation failed to pass.

But by late Thursday, Republicans and Democrats said it was unlikely the bill would proceed any further.

Anchorage Republican Rep. Lance Pruitt, a finance committee member opposed to the legislation, said he didn't want to spend the time debating the bill on the House floor — where he said it would fail — if it meant lawmakers would have to repeat the process in another special session.

"The numbers aren't there. I think the whole building can count," Pruitt said. Walker, he added, "needs to respect the people, and then I think it's possible at that point in time he might see a vote."

In a brief statement Thursday evening, Walker sounded unmoved, saying: "This legislation is the cornerstone for Alaska's future.

"Therefore, we will continue our goal of fixing Alaska regardless of how politically uncomfortable it may be for some," he added.

The battle over the Permanent Fund legislation pits Walker against skeptical Democratic and Republican legislators in the House.

Walker says a restructuring of the fund is needed to preserve the dividend program. He argues that a recurring deficit like the one in this year's budget would exhaust the state's primary savings account, the $8 billion Constitutional Budget Reserve, in the next two years.

Lawmakers would then be forced to cover the gap with the Permanent Fund's earnings account, from which dividends are paid, Walker says. Waiting longer to restructure the fund, he argues, will leave less money in savings that could be used to generate recurring investment returns to help pay for government.

But in addition to reducing the budget deficit, SB 128 would pay Alaskans lower dividends than last year's $2,078.

Though the dividends would still be close to the historical average, some House minority Democrats say they won't support reductions without strengthening taxes on the state's oil companies. Some Republicans, meanwhile, are unwilling to vote for the legislation without deeper budget cuts.

"The people of my district don't think we've cut the budget enough," said Rep. Dan Saddler, R-Eagle River, a finance committee member who said Thursday that he was "not inclined" to advance the Permanent Fund legislation to the floor. He added: "Until you get that social permission, the public permission, you're ignoring one of the most important elements of your job as a representative, which is to represent your constituents."

The Senate's version of the Permanent Fund bill was an adaptation of Walker's. It would turn the Permanent Fund into an endowment, allowing lawmakers each year to spend 5.25 percent of its value — and it would transition the state budget away from its dependence on volatile oil revenue.

Using the endowment approach, Permanent Fund revenue amounts to about $2.4 billion annually.

Some $700 million of that would go toward residents' dividends this year and each of the following two years under the Senate's version of the bill; the rest would go toward reducing the deficit.

Thompson's version would set aside $1 billion for dividends this year and next year — leaving some $300 million less to reduce the deficit. His legislation also includes another provision making more money available for government spending as oil revenue rises, in a bid for votes from the three minority Democrats on the finance committee.

But only one of those Democrats, Anchorage Rep. Les Gara, said Thursday that he would have been willing to advance Thompson's legislation to the floor — adding that he'd vote for the bill out of fear that a "worse" version with a smaller dividend would emerge if Thompson's failed.

Fairbanks Democratic Rep. David Guttenberg said he wouldn't endorse dividend reductions without strengthened oil taxes, or the inclusion of any of the tax proposals that were part of Walker's big package of financial reforms.

Republican legislative leaders scaled back Walker's oil tax legislation, and have so far refused to allow votes on his proposals to levy a personal income tax and increase existing taxes on alcohol, tobacco and natural resource extraction.

"We need a comprehensive plan," Guttenberg said. "It can't be only one thing."

Four Republicans on the finance committee were also opposed to the Permanent Fund legislation on Thursday: Saddler, Pruitt, and Reps. Tammie Wilson of North Pole and Lynn Gattis of Wasilla.

Wilson and Gattis have been vocal critics of the bill; Wilson published a Facebook post late Wednesday in which she exhorted readers to "tell your representative what you spend your PFD on and to keep their hands off of it."

Saddler said he'd been unlikely to support the bill but also wasn't sure what was going to be in the version introduced by Thompson on Thursday.

After seeing it, Saddler said he was wary of a move on the House floor to turn the legislation into a "Frankenstein's monster" by adding in more changes to the state's oil tax regime.

"It's a messy end to a long and difficult process," Saddler said.

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