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Alaska House majority pushes PFD constitutional amendment plan, ahead of state budget

The Alaska Permanent Fund Corp. headquarters in Juneau. (Nathaniel Herz / ADN)

The Alaska House is putting its state budget plan on the back burner so it can work on a constitutional amendment to create stronger protections for the Permanent Fund dividend program, lawmakers said Thursday.

The move from the largely-Democratic House majority is still in its early stages, and before the proposal can go before voters, it has to clear a high bar — passing by a two-thirds majority in both the House and Senate.

But the proposal aims to help solve two problems at once, according to Homer Rep. Paul Seaton, one of three Republicans in the House leadership.

One of the problems is Alaska's huge deficit, which will almost certainly force lawmakers to use some of the $65 billion fund's investment earnings to help balance the budget this year, for the first time.

The second, related problem is that spending those earnings on government services would leave less cash for Alaskans' annual dividend checks, which has left House majority members leery about taking such a step.

The new proposed constitutional amendment from the House majority, expected to be introduced Monday, would still use most of the fund's investment earnings to pay for state government, according to Seaton.

But it would also reserve a fixed proportion of those earnings for dividend checks — meaning that the payments could only be reduced further by another amendment to the Alaska Constitution, which requires the same two-thirds votes by the House and Senate and a majority vote by the public. And since the dividend portion of the fund would be harder to tap, the House majority's proposal could eventually further its goal of passing other measures, like taxes, to raise additional state revenue.

Homer Republican Rep. Paul Seaton, left (Nathaniel Herz / ADN)

"We're trying to figure out the way forward, and one of the ways forward is to protect the dividend long-term," Seaton said in a phone interview Thursday. "We trust the people to make the right decision — we're going to make sure that we're going to offer them something."

The new proposal represents a shift in focus for the House majority.

Its leaders have simultaneously acknowledged the need to slice dividends while objecting to the effects of that decision. That's in part, they say, because dividend payments are the same for each Alaskan, regardless of income — meaning that across-the-board reductions hit poor residents harder.

Majority members have previously proposed balancing the impact of the dividend reductions by resurrecting the state's long-dead income tax, which would ask high-income Alaskans to pay a larger proportion of their earnings.

The Republican-led Senate majority, however, has rejected the House's tax proposal, saying it would hurt Alaska's economy and that the Permanent Fund can solve most of the budget problem.

But deficit-reduction plans that rely on the Permanent Fund alone are expected to still leave a substantial budget gap. And House leaders worry that without taxes, lawmakers will turn back to the Permanent Fund for more money once the state's savings accounts are empty.

"If we rely on a Permanent Fund-only approach to resolving the budget deficit, there might not be a Permanent Fund dividend in the future," said House Speaker Bryce Edgmon, D-Dillingham. The amendment, he added, could "ultimately force the Legislature to make some difficult choices that in our caucus' view should be made now."

The House had planned to finish its work on the state's annual operating budget next week. But the finance committee canceled three hearings on the legislation this week and has scheduled two more next week on House Joint Resolution 23, which proposes a constitutional amendment related to the Permanent Fund.

Monday's hearing includes an opportunity for public testimony.

The resolution, originally sponsored by Anchorage Democratic Rep. Chris Tuck, has been sitting in the finance committee for nearly a year, without a hearing.

House leaders plan to release a substitute version Monday that will propose to restructure the management of the Permanent Fund. It would likely use most of its investment earnings for government services and leave a smaller portion for dividends, according to Seaton.

Edgmon said the size of the dividend payment will likely be in line with the $1,250 that's already included in the House's preliminary budget proposal.

That's substantially less than would be set aside if House leaders wrote their proposal to line up with the historical legal formula for calculating dividends. But legislative leaders in both the House and Senate, and Gov. Bill Walker, say that larger payments are not sustainable.

Before the proposed constitutional amendment can go before Alaska voters, though, it will need 27 votes in the House and 14 in the Senate — and those majorities are not guaranteed.

The House majority, after Friday's swearing-in of a new member, will hold 22 seats in the 40-member chamber, leaving it five votes short. A spokeswoman for the House Republican minority referred questions to North Pole Republican Rep. Tammie Wilson.

"What I have heard from the public is that they want to keep the PFD as it was originally formulated," said Wilson. She added that she would prefer to pay higher dividends, cut public services and spend some money from Alaska's savings accounts while waiting for state oil revenue to increase.

North Pole Republican Rep. Tammie Wilson speaks at a 2017 committee hearing. (Nathaniel Herz / ADN)

Some Senate majority members have also signaled their opposition to putting the dividend program in the constitution.

"For anyone who has studied history, that certainly wasn't the idea of the founding fathers — that we would ever make payments and that would be a constitutional right," he said.

And in an opinion piece this week, North Pole Republican Sen. John Coghill called the dividend a "statutory entitlement" that should not be placed in the constitution. He said in a phone interview Thursday that he would be unlikely to support the House's proposed amendment, though he added that he would allow debate on it in the Senate Judiciary Committee, which he chairs.

"I would hear it, I would discuss it and I would try to amend the constitutional dividend out," he said. "I would not hold it in committee."

The Senate majority's opposition, however, is not universal: Sen. Bert Stedman, R-Sitka, has his own proposal to put the dividend into the constitution.

His Senate Joint Resolution 9 is similar to the House majority's new proposal; it sets aside some of the Permanent Fund's earnings for the dividend while allowing the rest to be spent on government services.

Stedman's proposal, however, has not gotten traction with his colleagues: It's been sitting in the Senate State Affairs Committee since January without a hearing.

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