Lawmakers float ‘irresponsible’ draw from Permanent Fund earnings to pay full dividend

Alaska budget crafters in Juneau considered on Wednesday an $800 million draw out of the Permanent Fund earnings account to pay out a full statutory dividend, despite warnings that overdrawing the account could jeopardize future revenue used for both dividends and state operations.

A full statutory dividend would equal around $3,500 to every eligible Alaskan. The dividend included in the budget plan crafted by House Republicans was set at $2,272 — which has already been called unsustainable by House Minority members because it leaves little available funds in case of disasters or other unforeseen expenses.

The deadline for applying for this year’s dividend is on Sunday.

The House Finance Committee ultimately voted against the idea of expanding the dividend, but the proposal underscored the intractability of the annual debate on the size of the Permanent Fund dividend.

“The same fight — different year,” said Rep. Mike Cronk, a Tok Republican who sits on the Finance Committee. “When are we going to solve the issue?”

Since 2017, annual debates on the size of the dividend have consumed much of the budget conversation. Those debates have blurred the lines between conservatives and progressives and pushed lawmakers repeatedly to the brink of overdrawing state revenue to pay a larger dividend — even when they acknowledge that the payments could end up bankrupting the state.

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

Foster proposed bumping up the dividend size by increasing the annual draw from Permanent Fund earnings from the 5% currently written in state statute to just over 6%. The account currently has around $7.3 billion.

Revenue generated by the Permanent Fund accounts for more of the state’s spending than oil revenue, once the state’s primary source of funding.

But budget analysts have been warning that even by following the existing 5% annual draw, the state could face a liquidity crisis in the future.

The director of the Legislative Finance Division, Alexei Painter, said Wednesday that the additional draw would result in around $50 million less in future annual draws. It would also increase the risk that the state would run out of money to draw in future years.

An increased draw would create what Rep. Will Stapp, a Fairbanks Republican, called “an existential risk of not having money for dividends or anything else.”

Still, on Wednesday a majority of the House Finance Committee members said they would join Foster in supporting the proposal.

“I couldn’t think of a more irresponsible vote I could take,” said Rep. Bryce Edgmon, a Dilligham independent and fellow co-chair of the Finance Committee who — like Foster — represents a rural district where a large proportion of constituents support a full dividend. “I’m going to help you guys catch the car. I’m going to vote yes and we’re going to see where this is going to go.”

The committee adjourned Wednesday evening after the realization dawned on members that the ramifications of the vote could be significant. When lawmakers reconvened on Thursday, they narrowly agreed to change the source of the $800 million needed to increase the dividend size from the earnings account to the Constitutional Budget Reserve.

Drawing from that account, which currently has under $3 billion in it, requires a three-quarters vote in both chambers. The amendment, introduced by Anchorage Democrat Rep. Andy Josephson, passed in a 6-5 vote and tilted the balance of support for the proposal.

“A monumental decision to basically throw fiscal responsibility out the window at this point and not to put a balanced budget forward … should require a three-quarters vote,” said Edgmon.

After that amendment passed, the proposal lost support from Edgmon and several Republicans and ultimately failed in a 3-8 vote. Lawmakers acknowledged that reaching the three-quarters threshold in a floor vote would be unlikely and that doing so could have dire consequences for the state’s finances.

An attempt to revive the proposal — with a draw from the earnings account as originally proposed — failed again Thursday afternoon. In the final vote, only two Republicans joined Foster in supporting the proposal — Cronk and Rep. Frank Tomaszewski from Fairbanks.

Lawmakers have for several years ignored the state statute governing the size of the dividend because without additional revenue sources, paying a full dividend would mean massively slashing the state budget. But lawmakers have never ignored the statute limiting the annual draw from the Permanent Fund earnings. Doing so, some lawmakers said, would open the door to future draws that could ultimately drain an account that is critical for funding state services — including education and public safety, among others.

“I’ve always said — follow the law or change the law — but it’s clear we have two statutes kind of crashing into each other right now,” said Rep. Julie Coulombe, an Anchorage Republican.

The ordeal in the House Finance Committee underscores the enduring nature of questions on the Permanent Fund, and the expected lack of action this session on resolving the state’s longstanding structural deficit. A proposal promised by Gov. Mike Dunleavy to increase revenue through a statewide sales tax never materialized. Conversations about revenue have been all but crowded up by conversations about education funding and energy supply during the current session.

Conservatives — once convinced that the state could afford to pay full statutory dividends solely by cutting spending on state services — have largely stepped away from those claims.

To prove this point, Stapp, a Fairbanks Republican, proposed Wednesday paying for the full dividend not by drawing for the earnings account but by cutting $800 million from the state budget. That would require, by his calculations, cutting the state’s entire public safety budget, including all spending on the Department of Corrections, courts, the Department of Public Safety, and some funding from other departments.

Stapp quickly withdrew his motion, saying that while he supports some cuts to state services, he does not support such large cuts.

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

“In order to pay a statutory dividend, this state either needs to reduce its expenditures on government, or tax people. You have no other options,” he added.

A Republican-controlled House majority has, for a second year in a row, overseen the budget crafting process. In neither year have they proposed significant cuts to the budget proposed by Dunleavy, which itself largely holds the line on spending from year to year.

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

Republican lawmakers wondered aloud about the lack of a fiscal plan that includes new revenue measures, along with a spending cap, among other provisions to stabilize the state’s fiscal outlook. But there isn’t agreement within the House Majority, let alone the entire Legislature, on what that fiscal plan should entail.

Some Democrats and progressives — like Foster — continue to speak in favor of paying a full dividend, but argue that to do so, the state must increase its revenues — either by removing tax breaks for oil companies or by implementing an income tax that would apply to high earners in the state.

To make the point that there were other ways to pay for a full dividend, Foster proposed on Wednesday paying for the full dividend by removing tax benefits that the state reserves for oil companies.

In the 2024 Fiscal Year, Foster said the state paid $898 million to oil companies in the form of per-barrel tax credits. Repealing that program would pay for the full dividend, said Foster.

“I guess I’m just making a point that there are other options,” he concluded.

Alaska is the only state that levies neither a statewide sales tax nor an income tax while paying its residents an annual form of guaranteed income.

Lawmakers acknowledged during the two-day debate that the question of the dividend size is likely to return when the budget is debated on the House floor next month, leaving open the question of the dividend size.

The budget draft crafted by the House majority included what would be one of the largest dividend payments in the history of the program. To do that, budget crafters left little room for added spending measures that are almost guaranteed to erase a projected surplus in coming weeks, before the expected end of the session in May.

Lawmakers agreed earlier in the session about dividing the budget crafting work between the House and Senate to avoid a repeat of last year, when Senate members held their version of the budget until the final day of the session, to compel House members to accept their spending plan. Some lawmakers warned that the exchange in the House Finance Committee would signal to the Senate that the chamber could not be trusted with crafting a spending plan.

“If this passes, the other body is going to have to write the budget for us because they have no one on this side to work with,” said Josephson.