Senate Finance Committee proposes rewriting Permanent Fund dividend formula

JUNEAU — Alaska Gov. Mike Dunleavy campaigned for office with a pledge to pay the Permanent Fund dividend using the traditional formula in state law. On Friday, members of the Senate Finance Committee introduced a proposal to rewrite that formula.

Finance committee co-chairs Sen. Bert Stedman, R-Sitka, and Sen. Natasha von Imhof, R-Anchorage, said Friday that because the Alaska Legislature voted last year to create a formula that diverts a portion of the earnings of the Alaska Permanent Fund to state services and dividends, it makes sense to update the dividend calculation rather than have separate (and sometimes competing) formulae for the dividend and the amount of money available to pay it.

The first hearing on the idea is Wednesday.

“Clearly there’s a linking problem between the old statutory formula that was created in what, 1982, back in the end of the last century, to the portfolio value and mechanics that we have in the beginning of this century,” Stedman said.

When the traditional formula was created, the Permanent Fund was valued at approximately $1 billion; it’s now in excess of $65 billion.

“We need to evolve our statutes and our process with the magnitude of the Permanent Fund dividend,” Stedman said.

Traditionally, the dividend has been paid using a formula based upon the investment performance of the dividend. In a rising market, dividends are higher; in a falling market, they shrink.

Under last year’s legislation, the Alaska Permanent Fund Corp. annually provides the state treasury with 5.25 percent of its average value over the past five years. (In 2021, that amount goes down to 5 percent.) In the current fiscal year, that amounts to $2.7 billion. In the fiscal year that starts July 1, it will be $2.9 billion, according to figures from the Alaska Department of Revenue.

The new approach is straightforward: Divide that amount in half. One half pays dividends, the other half pays for government services.

If it were implemented this year, the October dividend would be about $2,300 per person — and lawmakers would have to figure out how to cut $861 million from the budget in order to pay it, according to calculations by von Imhof’s office.

Neither the cuts nor the $2,300 dividend are likely this year.

“Most likely, it’s going to take us a little more time," Stedman said.

While Dunleavy proposed larger cuts in order to pay a dividend using the old formula (which requires a split closer to 70/30), lawmakers in the House have been formulating an alternative budget that’s closer to 70/30 in the opposite direction.

Given that, why did the committee pick a 50/50 split?

“Because it’s in the middle,” Stedman said. “It’s a good point to go both directions.”

Stedman and von Imhof each said they expect lawmakers to debate the proper split in the days and weeks to come. Von Imhof said she wants to settle upon an amount that can stick around for years and takes into account expenses, such as deferred maintenance and pension debt, that will arrive in the future.

“There are many things to consider, and I think it’s important that our committee looks at the dividend in a holistic view in light of all our responsibilities and land on something that stands the test of time,” she said.

Each said a new formula for the dividend, coupled with separate spending cap legislation also introduced Friday, would form the basis of a long-term fiscal plan.

Dunleavy has taken similar steps and has introduced constitutional amendments to secure his ideas into permanence. The finance committee’s proposals would be in state law, which means lawmakers could change or ignore them at any time.

Since 2016, former Gov. Bill Walker and the Legislature have ignored the traditional formula for dividends.

Stedman said that if the finance committee’s ideas are successful, they could lead to constitutional amendments down the line.

“We want to, at the end of the day, at the end of this multi-year budget process, as we work out of this structural deficit, make sure we have a structure where we avoid the situations that we’re in today,” Stedman said.