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Alaska Legislature

A $5,000 PFD check? As boosters push for it, lawmakers dismiss it as ‘instant gratification’

Alaskans apply for the Permanent Fund dividend on March 30, 2017, at the PFD office in downtown Anchorage. (Bill Roth / ADN)

JUNEAU — What if Alaska lawmakers took all the cash they've stripped from Permanent Fund dividends and paid it out with this year's check, rather than leaving it in savings accounts as a safeguard against the state's budget crisis?

The result would be a $5,000 payment — a lump sum that some dividend boosters have been pushing for recently, with posts on social media that have been shared hundreds of times.

But you shouldn't count on seeing a check much larger than $1,000 anytime soon, according to interviews with state policymakers.

They argue that paying out PFD checks in line with a historical formula would either leave too little to cover the budget deficit or simply drain the Permanent Fund's investment earnings account — which they say would come at the expense of future generations' dividends and ability to pay for government services.

"Everybody gets what they want now. But they don't get it in the long term," said Pat Pitney, Gov. Bill Walker's budget director.

Oil taxes and royalties once paid for the vast majority of Alaska's budget. But for the past four years, the state has faced a massive deficit stemming from a crash in oil prices and the longstanding decline in production from the North Slope fields.

This year's proposed state spending is $4.6 billion, with just $2.1 billion in revenue to pay for it.

The deficit has prodded lawmakers to look toward the $65 billion Permanent Fund — an array of investments originally seeded with oil revenue — as a possible fix.

The fund's earnings have historically gone toward dividends, cash sums paid directly to residents each year, and the program has been seen as the third rail of Alaska politics for decades: Touch it and you risk being zapped at the ballot box. But Walker and many state lawmakers now say the fund's earnings should also be used to help pay for government services.

The Legislature, in spite of pressure from business groups and Walker's administration, has not agreed on a plan to spend the fund's earnings on government.

But in 2016, Walker, citing the deficit, vetoed about half the money that lawmakers set aside for the dividend — shrinking the payment to $1,022 from about $2,050, the amount it would have been under a traditional legal formula.

Gov. Bill Walker announced in 2016 that he was using his veto power to cap the Permanent Fund dividend. (Loren Holmes / ADN)

Then, last year, the Legislature agreed on an $1,100 dividend, instead of the roughly $2,350 that would have been paid out under the formula. And this year, Walker's budget proposed a reduced dividend of $1,215, instead of what would likely be a payment of around $2,700, according to the fund's projections of its own earnings and an Anchorage Daily News analysis.

Add the missing cash from 2016 and 2017 to a $2,700 payment for 2018 and you end up with about $5,000.

Critics of the dividend reductions are now pushing for payments that size, though their math has produced some larger numbers.

Cash that wasn't paid out in 2016 and 2017 remains in the fund's earnings account, and distributing it this year could help boost the state's lagging economy, argued Jim Crawford, a member of a group called the Permanent Fund Defenders, in an opinion piece this month.

"The Walker administration and legislators have frittered away the people's trust by capping the people's dividend three years in a row," Crawford wrote. "Sitting on the money to prove a political point breaks people's faith."

Another dividend reduction opponent, Brad Keithley, posted his own analysis of the reductions. He said it was aimed at supporting his argument that lawmakers seeking to balance the state budget should make cutting the payments their last resort.

Keithley cited an analysis by the University of Alaska Anchorage's Institute of Social and Economic Research that says dividend cuts cause the largest loss in Alaskans' income out of all the deficit-reduction policies studied — including budget cuts, taxes and cuts to the state workforce.

Dividend reductions, Keithley added, take an equal amount of cash from each Alaskan, regardless of income, meaning that higher-income residents — whom he referred to as the "donor class" that contributes money to Alaska politicians —would lose a smaller chunk of their overall earnings.

Taxes, he argued, could be structured to take the same percentage of each Alaskan's income.

"Political will is being driven by the donor class, and the donor class wants to drive this to the PFD because they don't have to pay for it," Keithley said. "To me, that's the wrong solution."

Keithley argued that the state can sustain its traditional dividend program while withdrawing an equal amount of cash from the fund to pay for government services.

But legislators and Walker's administration argued that Keithley's stance is politically and financially unrealistic.

It's politically unrealistic, according to Pitney, the budget director, because of the Republican-led Senate's opposition to using taxes to help balance the budget. That opposition means policymakers have to rely more heavily on the Permanent Fund's earnings to fill the deficit — leaving less cash available for dividends.

If the state paid out dividends under the traditional formula while plugging the deficit with the fund's earnings alone, its earnings account would be empty by 2023, according to an analysis released by the Walker administration a year ago — although higher oil prices and production could keep the account solvent for longer.

"If you do give everybody the same size check and cover the deficit, we will exhaust the earnings reserve, which will end the dividend program," Pitney said.

By reducing the past two years' dividends, according to Anchorage GOP Sen. Natasha von Imhof, lawmakers have allowed the state to keep the cash invested and growing in the Permanent Fund — more than $1 billion in total.

Taking that out now, von Imhof argued, would amount to "instant gratification" — jeopardizing the fund's total value and its ability to pay the state's bills in the future.

Sen. Natasha von Imhof, R-Anchorage (Nathaniel Herz / ADN)

Von Imhof, like other members of the Senate's mostly Republican majority, said she opposes levying taxes to reduce the pressure on the Permanent Fund and dividend because of the effect taxes would have on Alaska's "producing sector." The Senate majority has favored a plan that includes reducing dividends, cutting the state budget and filling the remaining deficit with Alaska's diminishing savings accounts.

Von Imhof said the state's health care costs — the highest in the nation, according to the Kaiser Family Foundation — are already making it difficult to do business in Alaska.

While Alaska's tax burden is the country's lowest, according to the Tax Foundation, von Imhof argued that taxes would still push high earners and business owners out of the state.

"People who have money, they will leave," von Imhof said. "They will go to states where they can actually do their business and not have the high cost of health care."

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