Alaska lawmakers consider changes to Permanent Fund dividend, but agreement remains distant

JUNEAU — An eight-member legislative panel has failed to reach agreement on possible changes to the Alaska Permanent Fund dividend, leaving legislators with no firm guidance on an issue that is expected to consume their attention this year.

The legislative session begins Tuesday, and lawmakers are again expected to struggle to balance the state budget, which contains a $1.5 billion deficit if legislators and Gov. Mike Dunleavy don’t raise taxes, cut state services or cut the Permanent Fund dividend.

The “Bicameral Permanent Fund Working Group” was created in 2019 to provide policy recommendations to the wider Legislature, and its membership amounted to a “microcosm” of the Alaska Legislature’s 60 members, said its chairs, Rep. Jennifer Johnston, R-Anchorage, and Sen. Click Bishop, R-Fairbanks.

In seven months of meetings, the working group agreed on only one recommendation, which was finalized Monday: The Legislature should not violate a Permanent Fund spending cap approved in 2018.

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If followed, that could deny any supplemental Permanent Fund dividend payments, such as those proposed by the governor last year. Sen. Shelley Hughes, R-Palmer and a member of the working group, said she doesn’t believe the recommendation completely excludes the possibility.

There was no agreement on whether the traditional Permanent Fund dividend formula should change, and if so, how. In failing to reach consensus, the working group’s actions, as well as its membership, are a microcosm of the Legislature.

“Unfortunately, I would agree with that,” said Rep. Kelly Merrick, R-Eagle River, one of the working group’s members, when asked whether its failure to reach agreement is emblematic of the Legislature as a whole.

Rep. Jonathan Kreiss-Tomkins, D-Sitka, said he felt the workgroup limited itself and that its work isn’t a failure.

“It was my perspective that our scope of work was somewhat restrained, so it never felt that we never threw ourselves headlong into looking at new dividend formulas,” he said.

Two years ago, lawmakers capped the amount of money that may be transferred each year from the Permanent Fund to the treasury but didn’t say how much of that transfer should be reserved for dividends and how much should be used to pay for state services.

The capped transfer is not large enough to pay for both government services and a Permanent Fund dividend under the traditional formula used since 1982. But legislators do not agree on a solution. Some prefer to cut services in order to sustain the traditional formula, which they see as different from other expenses. Some contend that taxes must be raised. Others prefer to simply cut the dividend to preserve services while balancing the books.

Arguments over the appropriate size of the dividend have taken place each year since 2016, when then-Gov. Bill Walker vetoed half of it. Hughes said she expects similar arguments this year, but with a different flavor.

“Last year, it was pretty much over budget amount and PFDs. This year, you’re going to hear a lot more about revenues,” Hughes said, adding that debates over a higher gas tax and a school tax are possible.

Further complicating matters is the fact that the 2018 cap can be bypassed if a majority of the House, Senate and the governor agree. That means there will always be pressure to increase the dividend at the expense of the Permanent Fund’s long-term earnings.

“So long as the dividend formula is unresolved, there is going to be political risk to the Permanent Fund,” Kreiss-Tomkins said.