One day after passing a budget with a full Permanent Fund dividend (PFD), Senate President Cathy Giessel (R-Anchorage) returned a bill to the Rules Committee Thursday, May 2, that would change the PFD formula and forever redefine “full PFD.”
The Senate budget adopted Wednesday includes a PFD calculated with the statutory formula.
PFDs are currently paid using half of 21 percent of the Permanent Fund’s net income over the last five years. With the Permanent Fund over $65 billion, the formula yields a PFD of about $3,000, expected to continue to grow with the value of the Fund.
Last year, the legislature passed SB 26, annually spinning off a 5.25 percent-of-market-value (POMV) payout from the Permanent Fund Earnings Reserve Account (ERA), the same account from which PFDs are paid. The POMV now covers PFDs and a portion of government services.
But the PFD formula wasn’t changed in SB 26.
This year, a statutory PFD would take $1.9 billion of the $3 billion POMV. The PFD’s percentage of the POMV will continue to grow, reducing money for government services.
When Gov. Mike Dunleavy included a $3,000 PFD in his FY 2020 budget, it created a $1.6 billion deficit that he proposed to close with unprecedented cuts, spending from savings, and the seizure of over $400 million in municipal tax revenue.
Even after deep Senate cuts to the Department of Health & Social Services (DHSS) and the Alaska Marine Highway System (AMHS), there is still a deficit of $1.2 billion.
SB 103, sponsored by the Senate Finance Committee, seeks to rewrite the PFD formula, allocating half of the POMV to PFDs and the other half to government services.
The end result is a PFD of about $2,300.
However, the 50/50 split in SB 103 would leave a structural deficit of $800 million to $900 million that Legislative Finance Director David Teal said will drain the Constitutional Budget Reserve (CBR) savings account and then eat away at the Permanent Fund without new taxes or the sort of cuts Dunleavy proposed.
Senate Finance Co-chair Bert Stedman (R-Sitka) was the only member of Senate Finance to give SB 103 a recommendation of “do pass.” Sen. Bill Wielechowski (D-Anchorage) recommended against passage, while Senate Finance Co-chair Natasha von Imhof (R-Anchorage), Sen. Lyman Hoffman (D-Bethel), Sen. Click Bishop (R-Fairbanks), and Sen. David Wilson (R-Wasilla) recommended amendment.
von Imhof, in particular, has been critical of deficits created by large PFDs and the sacrifice of government services to keep PFDs whole.
Limited Senate Finance support for the version of SB 103 that left the committee made Thursday’s return to Senate Rules less than surprising. Yet it is a rare move that signals a bill has a technical flaw that cannot be fixed on the floor, or that the bill simply does not have enough votes to pass.
So far this session, Senate Rules has only held one two-minute hearing to organize itself. It has not held any bill hearings.
It is likely that the version of SB 103 that emerges from Senate Rules will tilt the POMV split more toward government services.
von Imhof is one of the five members of the Senate Rules Committee. Stedman is not.
Further, the other three majority members — Giessel, Senate Rules Chair John Coghill (R-North Pole), and Senate Majority Leader Mia Costello (R-Anchorage) — all voted for a version of the POMV bill (SB 128) in the 29th Legislature that included a 75/25 split.
Teal demonstrated that a 75/25 split, wherein the PFD is 25 percent of the POMV payout, results in manageable future deficits of $100 million to $200 million. Such a split would make the PFD about $1,200.
For comparison, if a PFD were paid from the $750 million remaining from the POMV after the expense of government services in the Senate budget, it would also be roughly $1,200.
No Senate Rules hearings have yet been scheduled.
The House elected Thursday not to take up concurrence on the budget.
Nonconcurrence with the Senate budget and appointment of a budget conference committee will trigger the 24-hour rule. Under the rule, committees can schedule hearings the day before they are held, meaning Senate Rules could quickly arrange a hearing and act upon SB 103.