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House proposal to put PFD in Alaska Constitution won’t guarantee payments

The Alaska Permanent Fund Corp. headquarters in Juneau on January 20, 2018. (Nathaniel Herz / ADN)

Enshrining the Permanent Fund dividend in the Alaska Constitution doesn't actually guarantee that you'll get one, it turns out.

A rewritten proposal unveiled Monday by the Alaska House's largely-Democratic majority, House Joint Resolution 23, would amend the state Constitution to include the dividend program for the first time. Majority leaders have described the proposal as a way to protect dividend payments while allowing some — but not all — of the Permanent Fund's earnings to be used to cover the state's massive deficit.

But the proposal only protects dividends as a concept; the exact amounts of the payments would not be guaranteed.

The House's idea to pay a specific share of the fund's earnings — one third, or about $1,250 a person — would instead be a recommendation to future lawmakers. Those future lawmakers would still have the freedom to make dividends larger or smaller, depending on the demands of other state programs like education or health care.

The original version of the proposal would have specified the exact amount of earnings to be paid as dividends. But doing so would conflict with other constitutional provisions that reserve powers of budgeting and veto for the Legislature and governor, said Homer Rep. Paul Seaton, co-chair of the House Finance Committee.

The new version leaves those powers intact while still giving direction to future elected officials, he added.

Homer Republican Rep. Paul Seaton stands in the House chambers last year. (Nathaniel Herz / ÅDN)

"There's going to be much more reluctance by the Legislature to go against the will expressed by a vote of the people," said Seaton, one of three Republicans in House leadership.

Alaskans, he added, "can hold their legislators accountable for following their direction."

The House Finance Committee took public testimony on the new proposal late Monday and will consider amendments Tuesday, Seaton said.

To pass, it will require 27 votes in the 40-member House. Seaton's majority has 22 members, meaning that at least five votes will be necessary from the Republican minority. The measure's fate is even less certain in the state Senate, where leaders in the mostly-Republican majority have already expressed skepticism.

Several House Republicans made social media posts Monday declaring their opposition to the majority's new proposal.

"This resolution will change the PFD forever and government gets the lion's share," wrote Wasilla GOP Rep. Colleen Sullivan-Leonard. Her post did not say how she proposes to fill the budget deficit that would remain if the dividend is left intact.

HJR 23 is the House majority's latest plan to address Alaska's massive budget gap.

Oil taxes and royalties used to pay for the vast majority of state government services. But since the 2014 crash in oil prices, the Legislature has used billions of dollars in savings to cover the resulting budget gap.

There's likely not enough money in the state's main savings account, the Constitutional Budget Reserve, to cover next year's gap, however.

Lawmakers have been looking to the $65 billion Permanent Fund as an alternative, saying that its investments, originally seeded with oil revenue, generate enough cash to fill most of the deficit.

But they haven't agreed on a framework to spend those earnings on government services — in part because taking that step means that Alaskans will get smaller dividend checks.

House majority members say that reducing dividends affects poor Alaskans disproportionately, since the payments make up a larger share of their earnings.

In the past, they've said they're willing to restructure the dividend if lawmakers also approve an income tax, which would fill more of the deficit while asking for larger contributions from high-earners.

But the Senate last year rejected the House's tax proposal, with Senate leaders saying the measure would hurt the state's economy and the leaders of the businesses that help power it.

House leaders say they're worried that if the state's savings accounts run out, the Senate majority would prefer to spend increasing amounts of Permanent Fund earnings on government before turning to taxes — ultimately leaving nothing for dividends.

They argue that putting the dividend program in the Constitution will protect it from future lawmakers who might want to reduce it.

But the language of the proposal introduced Monday says only that lawmakers "may" appropriate one-third of the Permanent Fund's earnings for dividends, not "shall." That means lawmakers, in their annual budget-writing process, will still be able to consider whether other state programs are a higher priority than the dividend, said Seaton, the finance committee co-chair.

The House's original version of the constitutional amendment used the word "shall." But dedicating a specific amount of Permanent Fund earnings would conflict with other, existing provisions in the Alaska Constitution, Seaton said.

The new version of the amendment wouldn't interfere with those provisions — namely the Legislature's power of appropriation and the governor's veto power, according to a memo written for Seaton by legislative attorneys.

Since the House is already proposing to amend the Constitution, why can't it also amend the existing provisions to allow for a specific dividend amount?

Because such changes would amount to a more substantive "revision" of the Constitution, rather than a simple amendment, Seaton said. Such revisions could require approval at a constitutional convention, he added.

The amendment process being used by the House is more straightforward; it allows changes to take effect by a majority vote of the people, after the proposal's language is approved by a two-thirds vote in the House and Senate.

One of the two surviving delegates to Alaska's constitutional convention, Vic Fischer, said he's come around to the idea of setting aside a specific share of Permanent Fund's earnings for dividends, in spite of the existing provisions in the document that he helped write.

Vic Fischer, a statehood founder and delegate to the Alaska Constitutional Convention. (Charles Wohlforth / ADN)

"The constitutional delegates had total faith in the governor, the future governors and legislatures and in the future judicial system," said Fischer, 93. "But the Constitution has been amended a number of times in various ways, and I would say that the experience at this point has convinced me that if the Legislature has a future character as we have had over recent years, we're on the verge of destroying not just the dividend but the Permanent Fund itself."

Fischer also disputed the idea that specifying a dividend amount would require a constitutional convention, referring to it as "hogwash."

Another important element of the House's new proposal would allow lawmakers to spend cash from the Permanent Fund's investment earnings beyond what lawmakers deem to be a sustainable rate — 4.75 percent of the fund's total value each year. Such a step could only be taken by a three-fourths vote of both the House and Senate.

Seaton said that provision ensures that lawmakers could use the fund during emergencies. And the measure may also be amended to put tighter limits on such withdrawals, he said.

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