Alaska Legislature

Alaska Senate defers vote on new Permanent Fund dividend formula

JUNEAU — The Alaska Senate on Thursday put off a vote on a new Permanent Fund dividend formula one day after senators voiced strong support for a dividend paid using the traditional distribution system.

Senate Bill 103, which revises the formula, was pulled off the Senate floor and returned to the Senate Rules Committee for amendments.

Supporters of the new dividend formula, which is based on an average value of the Permanent Fund rather than average earnings, say changing the formula is necessary because the current system is unsustainable. Critics say such a large change should first be approved by voters.

If passed by lawmakers, the new formula would not implemented until 2020, but it appears to lack support in the Senate as currently written. On Wednesday, senators approved a budget that pays out dividends using the traditional formula and rejected an amendment that would have cut this year’s dividend to eliminate a projected deficit.

At present values of the Permanent Fund, the traditional formula results in a $3,000 dividend for this year. If the new formula were applied, the dividend would be $2,300.

“There were enough concerns and folks wanting to tweak it and understand more deeply the implications that I and Sen. (John Coghill, R-North Pole) … determined it would be most prudent to do more work on the bill,” Senate President Cathy Giessel, R-Anchorage, said Thursday.

She said it would be inappropriate to make a “direct correlation” between Wednesday’s vote on the dividend-reduction amendment and Thursday’s decision.

Senate Majority Leader Mia Costello, R-Anchorage, said returning the bill to committee allows testimony and more in-depth investigation that isn’t possible with a floor amendment.

One of the biggest sticking points in the Senate is whether the proposal should be subject to a statewide vote. Gov. Mike Dunleavy has said any changes to the dividend formula should be subject to either a binding vote or an advisory vote in the next statewide election.

Speaking on the Michael Dukes radio show Wednesday, Sen. Peter Micciche, R-Soldotna, said he and six other Republican senators feel the same way. Sen. David Wilson, R-Wasilla, told Dukes that he is one of those six.

“I don’t support it without a vote of the people, and we’ll try to put it in, and if it doesn’t make it in when it goes to the floor, then I’m a no,” Micciche said.

He confirmed his thoughts in an interview Thursday, saying that his amendment would sunset the dividend change and call for an advisory vote. If the vote passes, legislators could come back and change the sunset date.

Giessel said Thursday that there’s a problem with that approach.

“If we put the 50-50 split out to voters and they say no, where does that leave us?” she said.

Sen. Bert Stedman, R-Sitka and co-chairman of the Senate Finance Committee, said there is no timeline for the Senate Rules Committee to revise the bill and send it back to the floor, but he and Giessel each said they believe it is a necessity this year. The constitutional end of the regular session is May 15.

The House and Senate have each approved draft budgets, and each has a surplus of about $700 million before the dividend is calculated. That $700 million is equivalent to a dividend of about $1,200 per person. The House budget does not specifically designate a dividend amount, but on April 12, Rep. Neal Foster, D-Nome and co-chairman of the House Finance Committee, said the House dividend is about $1,200.

The $3,000 dividend under the traditional formula, which is included in the Senate budget, comes at a cost of $1.9 billion.

That results in a deficit of $1.2 billion in the Senate budget, according to estimates from the nonpartisan Legislative Finance Division. Lawmakers could pay for that amount from either the state’s Constitutional Budget Reserve or from the Alaska Permanent Fund.

The budget reserve is expected to contain $2.3 billion at the start of the next fiscal year and can cover that deficit for one year. The problem comes in the following year: If lawmakers cannot make sufficient cuts, the budget reserve will lack enough money. That would leave only the Permanent Fund, and lawmakers last year placed limits on withdrawals from the fund.

If nothing else changes, they would then have to decide whether to break the dividend-setting law or the one putting limits on withdrawals from the Permanent Fund.

The revised formula is not a complete answer: Even if it were passed and effective this year, according to figures from the office of Sen. Natasha von Imhof, R-Anchorage, there would still be a deficit of $860 million per year.

Further budget cuts could resolve the situation, but as Giessel said, “While (Alaskans) might say, ‘Cut government more, I want a full dividend,’ when you start doing that, we start getting emails about the roads not being plowed, or the potholes filled, or ‘I have five kids and I need help with Medicaid.’

“That’s where it’s getting difficult,” Giessel said.

James Brooks

James Brooks was a Juneau-based reporter for the ADN from 2018 to May 2022.