Fix the Permanent Fund dividend? There’s no shortage of ideas in the Alaska Legislature

By: - March 20, 2023 5:59 am

Rep. Ben Carpenter, R-Nikiski, speaks to reporters during a news conference on Tuesday, March 14, 2023, at the Alaska State Capitol in Juneau, Alaska. (Photo by James Brooks/Alaska Beacon)

A crowded field of Permanent Fund dividend ideas became even more so on Friday as members of the Alaska Senate Finance Committee proposed a new formula for setting the amount of the annual Permanent Fund dividend. 

In the first 60 days of the 2023 legislative session, Alaska lawmakers have introduced six different proposals to set a new dividend formula in either state law or the constitution. 

Four other bills or resolutions would substantially affect the amount of money available for dividends without specifically setting a new formula.

Legislators say none are likely to pass this year, but any one of the ideas being discussed now could emerge as the leader next year to fix an annual problem that has bedeviled the Legislature and the state for seven years.

“I think we all realize that resolving the fiscal plan, resolving the Permanent Fund dividend, is crucial,” said Senate President Gary Stevens, R-Kodiak. “We have an opportunity this year to do that with the cooperation of the governor and also the House. Hopefully we get to that point.”

What’s the split?

Until 2016, the state relied on a dividend distribution formula from the 1980s, one that relied on the net income of the Alaska Permanent Fund.

When oil prices and the Permanent Fund boomed in the 2010s, it created an odd disparity: The state was running huge deficits but paying large dividends. 

Lawmakers worried about uncontrollable spending from the Permanent Fund, and in 2018, they voted to set up an annual, multibillion-dollar transfer from the Permanent Fund to the state treasury, effectively setting a withdrawal limit. 

That transfer, worth more than $3 billion, is the state’s largest source of general-purpose revenue, more important than oil taxes to the state budget.

Most proposals for a new Permanent Fund dividend formula involve splitting that transfer in some way, reserving part for dividends and part for services.

In 2021, Gov. Mike Dunleavy proposed a 50-50 split, half for dividends and half for services; his current draft budget relies on the obsolete 1980s formula to set the dividend.

That formula is based on the Permanent Fund’s total income, and if it were used today, it would absorb about 71% percent of the transfer in the fiscal year that begins July 1.

Balancing the budget in that scenario would require steep budget cuts, spending from savings or abrupt tax increases. The governor proposed spending from savings; key lawmakers have said they’re unwilling to do that, citing the deep reductions in savings over the past decade.

Fiscal working group provides the framework

For the past seven years, ever since then-Gov. Bill Walker vetoed half the payment called for under the old formula, legislators and governors have set the dividend by fiat. 

Disagreements over the proper size have dragged out the state’s annual budget process, sometimes taking the state to the brink of a government shutdown.  

Those same disagreements have stymied efforts to set a new formula. 

In 2021, a bipartisan, bicameral group of legislators created the framework of a plan to resolve the debate. 

They concluded that the Legislature should work toward a 50-50 split, a constitutionally guaranteed dividend, adopt a “a broad-based revenue measure” — a term frequently used as a euphemism for tax increases, work toward budget cuts and tighten the state’s spending cap.

“There is a financial or fiscal problem we’re trying to solve, and there’s a political problem sitting on top of it,” said Rep. Ben Carpenter, a Nikiski Republican. “So the fiscal policy working group report is an attempt to solve both of those.”

When asked whether it makes sense to think of an effective solution as looking something like a socket wrench, Carpenter agreed. It’ll include a fiscal plan (the socket driver) and a socket — the dividend formula.

“It’s tough, you know. I think it all has to be part of a whole,” said Speaker of the House Cathy Tilton, R-Wasilla. 

In the House Ways and Means Committee, which Carpenter chairs, lawmakers have been discussing various concepts for a new formula:

  • Rep. Zack Fields, D-Anchorage, has proposed setting the dividend at no more than $1,000, which would leave a large amount of money available for services, even at low oil prices.
  • The Senate Finance proposal and a similar one from Rep. Dan Ortiz, I-Ketchikan, would set a 75-25 split, reserving 25% of the annual Permanent Fund transfer for dividends. This year, that would be about $1,350 per recipient. Advocates say it delivers reliable dividends at currently estimated oil prices, production and budgetary inflation.
  • Though Dunleavy has not introduced a 50-50 dividend this year, Sen. Bill Wielechowski, D-Anchorage, has proposed one in a constitutional amendment. A 50-50 dividend would be about $2,700 per recipient this year and would create a deficit at current levels of spending and expected revenue.
  • Several legislators and the House Ways and Means Committee have independently proposed constitutional amendments guaranteeing a dividend paid according to an as-yet-unwritten formula in state law. Putting the guarantee in the constitution would require legislators to follow the formula, whatever it is, though they could change the formula if it proves ineffective.
  • The House Ways and Means Committee also proposed an amendment guaranteeing a 50-50 dividend or a dividend paid using the traditional formula, whichever is higher.

The Senate hasn’t discussed a new formula in committee yet this year, and the House has worked in isolation from the other half of the Legislature. 

“They’re doing their own thing,” Tilton said.

Different factors may change the odds of success

To encourage public testimony, the ways and means committee has been holding meetings on nights and weekends, an unusual schedule for Alaska lawmakers.

They’ve also held an aggressive schedule, spending hours on the issue. Carpenter, who was a member of the fiscal working group, has previously said he was frustrated by a lack of action under the House’s old leadership caucus, a predominantly Democratic coalition.

This year, the House is in the control of a predominantly Republican coalition. While majority lawmakers don’t have a unified position on what the dividend should be, Carpenter said its members have made a long-term fiscal plan one of their priorities.

The leadership change has given him a reason to hope that this Legislature could succeed on a new formula where others have failed. 

He said there’s a small chance — about 1% — that a new formula becomes law this year, but the chance will rise next year. 

Changing attitudes and interests are contributing to a new picture. At the recent Anchorage Town Hall meeting, none of the attendees in a standing-room-only auditorium suggested that the dividend was a top priority.

“It’s really concerning where our state is headed, and people want to see something talked about other than just the size of the dividend,” said House Minority Leader Calvin Schrage, I-Anchorage.

Rep. Cliff Groh, D-Anchorage, is a minority member of the ways and means committee and has been active in its discussions. 

He said the 17 new members of the House this year are a “helpful influence” on the dividend debates and could help break the yearslong impasse on the issue. 

“I’m encouraged we’re having an open and honest discussion,” Groh said.

The Senate Finance Committee is scheduled to hold a hearing on its plan at 9 a.m. Tuesday. The House Ways and Means Committee has not yet scheduled its next dividend-related hearing.

Clarification: This article has been updated to reflect the fact that Carpenter agreed with the socket wrench comparison, but didn’t make it.


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James Brooks
James Brooks

James Brooks is a longtime Alaska reporter, having previously worked at the Anchorage Daily News, Juneau Empire, Kodiak Mirror and Fairbanks Daily News-Miner. A graduate of Virginia Tech, he is married to Caitlyn Ellis, owns a house in Juneau and has a small sled dog named Barley. He can be contacted at [email protected].