Lawmakers claim ‘irresponsible’ withdrawal from Endowment Fund proceeds to pay full dividends

Alaska state budget writers in Juneau on Wednesday considered withdrawing $800 million from the Permanent Fund Income Account to pay the full legal dividend, but overdrawing the account would mean it would be used for both dividends and state operations. It warned that future revenue generated by the government could be in jeopardy.

If the full statutory dividend is paid, every eligible Alaskan will receive approximately $3,500. The dividend, included in the House Republican-authored budget proposal, was set at $2,272, but House minority members have already called it quits because it leaves little money in the event of a disaster or other unexpected expense. There are voices saying that it is unsustainable.

The deadline to apply for this year’s dividend is Sunday.

Although the House Finance Committee ultimately voted against the idea of ​​increasing the dividend, the proposal underscored the difficulties of the annual debate over the size of the Permanent Fund’s dividend.

“It’s the same fight, but in a different year,” said Rep. Mike Cronk, R-Tock, who serves on the Finance Committee. “When are you going to solve that problem?”

Since 2017, annual debates over the amount of dividends have consumed much of the budget debate. These debates have blurred the lines between conservatives and progressives, with lawmakers pushing for larger dividends even though they acknowledge the payments could ultimately bankrupt the state. Many times they were brought to the brink of exceeding state revenues to pay for it.

Rep. Neil Foster, a Nome Democrat who co-chairs the House Finance Committee, proposed Wednesday to amend the state budget to include the full statutory dividend.

Mr. Foster proposed raising the dividend amount by increasing the annual income from the endowment fund to just over 6% from the 5% currently required by state law. The account currently holds approximately $7.3 billion.

Revenue generated by the Permanent Fund now accounts for more of the state’s spending than oil revenues, which used to be the state’s main source of funding.

But budget analysts have warned that even if it adheres to the current 5% annual allocation, the state could face a liquidity crisis in the future.

Legislative Fiscal Service Director Alexei Painter said Wednesday that the additional drawings would reduce future annual drawings by about $50 million. It would also increase the risk that states will run out of funds to draw down in the future.

More drawings would create what Rep. Will Stapp, R-Fairbanks, called “an existential risk of losing dividends and other funding.”

Still, on Wednesday, a majority of members of the House Finance Committee joined Foster in supporting the proposal.

“I couldn’t imagine a more irresponsible vote,” said Rep. Bryce Edgmon, an independent from Dirigum and co-chair of the finance committee. Like Mr. Foster, he represents rural areas supported by the majority of voters. Full dividend. “I’m going to help you guys catch the cars. I’m going to vote yes and see how this thing goes.”

The committee adjourned Wednesday night as members began to realize the impact of the vote could be significant. When lawmakers reconvened Thursday, they narrowly agreed to move the $800 million needed to fund the dividend increase from the revenue account to the Constitutional Budget Reserve.

A three-quarters vote in both chambers is required to remove funds from accounts that currently hold less than $3 billion. The amendment, introduced by Anchorage Democratic Rep. Andy Josephson, passed on a 6-5 vote, tipping the balance of support for the proposal.

“A monumental decision to basically ignore fiscal responsibility at this point and not bring forward a balanced budget would require a three-quarters vote,” Edgmon said.

After the amendment passed, the proposal lost support from Edgmon and several Republicans, and was ultimately defeated by a vote of 3 to 8. Lawmakers acknowledged that they were unlikely to reach the three-quarters threshold in a floor vote and that doing so could have dire consequences for the state’s finances.

Attempts to revive the proposal by debiting revenue accounts as originally proposed failed again on Thursday afternoon. Cronk and Fairbanks Rep. Frank Tomaszewski were the only two Republicans to join Foster in supporting the proposal in the final vote.

For years, lawmakers have ignored state laws governing the size of dividends because paying them in full without additional funding would mean significant cuts to the state budget. But lawmakers have never ignored legislation that limits annual withdrawals from Endowment Fund earnings. Some lawmakers say that would open the door to future funding that could ultimately drain critical accounts that fund state services like education and public safety. Stated.

“I’ve always said — follow the law or change the law — and it’s clear that the two laws are now in conflict,” said Rep. Julie Coulomb, an Anchorage Republican.

The ordeal in the House Finance Committee highlights the persistence of questions about the Permanent Fund and the lack of expected action this Congress on resolving the state’s longstanding structural deficits. A proposal Gov. Mike Dunleavy promised to raise revenue through a statewide sales tax never materialized. In this Congress, the topic of revenue has been largely overshadowed by topics such as education funding and energy supply.

Conservatives, once convinced that they could afford to pay the full statutory dividend simply by cutting spending on state services, have now largely distanced themselves from that argument.

To prove this point, Stapp, a Fairbanks Republican, proposed Wednesday to pay the entire dividend by cutting $800 million from the state budget rather than drawing it from revenue accounts. By his calculations, that would require cutting the entire state public safety budget, including all spending on the Department of Corrections, courts and the Department of Public Safety, as well as some funding from other departments.

Stapp quickly withdrew the motion, saying he supported some cuts to state services but not such deep cuts.

“I tend to believe that we probably need corrections, we need a court system, we need public safety. I think those are probably good things,” Stapp said.

“In order to pay the statutory dividend, this state must either cut spending on government or tax its citizens. There is no other choice,” he added.

A Republican-controlled House majority is overseeing the budget process for the second year in a row. In neither year, Dunleavy proposed any major budget cuts, and Dunleavy’s budget itself determines most of the spending each year.

“I believe that the size and scope of government can absolutely be reduced. I don’t believe you can cut $1 billion out of it. I don’t think you can cut $800 million out of it because the consequences would be catastrophic.” I don’t think it can be worked out,” Stapp said Wednesday.

Republican lawmakers loudly questioned the lack of a fiscal plan that includes new revenue measures and spending caps, among other provisions meant to stabilize the state’s fiscal outlook. But there is no consensus within the House majority, let alone Congress as a whole, on what that fiscal plan should entail.

Some Democrats and progressives (like Mr. Foster) continue to speak out in favor of paying the full dividend, but that would require eliminating tax breaks for oil companies or introducing an applicable income tax. They argue that this should increase state revenue. For high income earners in the state.

Underscoring that there is another way to pay dividends in full, Foster proposed on Wednesday that the state remove tax benefits reserved for oil companies and pay them in full.

Foster said the state paid oil companies $898 million in per-barrel tax credits in fiscal year 2024. Foster said eliminating the program would result in the full dividend being paid.

“I think I’m just arguing that there are other options,” he concluded.

Alaska is the only state that imposes no statewide sales or income tax, paying residents a guaranteed annual income.

Lawmakers acknowledged during two days of debate that the issue of the size of the dividend remained unresolved, with the issue likely to be debated again when the budget is debated in the House of Commons next month. .

The draft budget authored by the House majority included the largest dividend payment in program history. That left budget planners with little room to take additional spending measures that would almost certainly eliminate the projected budget surplus. It will be several weeks before the session ends as scheduled in May.

Lawmakers agreed early in the session to divide budget-writing work between the House and Senate to avoid a repeat of last year, when senators held up budget proposals until the last day of session, forcing House members to accept spending. plan. Some lawmakers warned that the exchange in the House Finance Committee would show the Senate that Congress cannot be trusted to create spending plans.

“If this passes, the other side will have to create a budget for us because they don’t have anyone to work with,” Josephson said.