Alaska Senate again passes bill to spend Permanent Fund earnings

JUNEAU — Alaska's Republican-led Senate on Wednesday approved a bill to use some of the Permanent Fund's investment earnings to fill most of the state's massive deficit, one of the first big moves in its end-of-session chess match with the House, where leaders have different ideas about solving the deficit.

Senate Bill 26, which would set dividends at $1,000 for the next three years, is similar to the measure the Senate passed last year in a 14-5 vote. On Wednesday, it passed 12-8.

The legislation was initially sponsored by Gov. Bill Walker, but it was transformed in the Senate to look nearly identical to a separate bill from majority members.

Walker watched much of the debate and vote from the visitor gallery. After the bill passed, he went to Twitter to praise the Senate for showing "great leadership" and taking "courageous actions."

The current version of the bill includes a provision to reduce withdrawals from the Permanent Fund when state oil revenues are high.

It also caps government spending at roughly its current level, but the spending cap can be ignored in the Legislature's annual budget process each year, since the budget is itself a law.

It would use about $2 billion in investment earnings to help close the state's deficit of nearly $3 billion.

Voting in favor of SB 26 were Sens. Click Bishop and Pete Kelly, R-Fairbanks; John Coghill, R-North Pole; Mia Costello, Cathy Giessel, Kevin Meyer and Natasha von Imhof, R-Anchorage; Anna MacKinnon, R-Eagle River; Lyman Hoffman, D-Bethel; Peter Micciche, R-Soldotna; Bert Stedman, R-Sitka; and Gary Stevens, R-Kodiak.

Against were Sens. Tom Begich, Berta Gardner and Bill Wielechowski, D-Anchorage; Mike Dunleavy, Shelley Hughes and David Wilson, R-Wasilla; Dennis Egan, D-Juneau; and Donny Olson, D-Golovin.

Before passage, the Senate shot down four amendments, including from its Republican majority's own ranks.

Dunleavy sought an amendment to reinstate the roughly 50 percent of last year's dividend payments vetoed by Gov. Bill Walker.

The majority used a maneuver to table the proposal, which, because of rules forcing majority members to act as a bloc on procedural questions, forced Dunleavy to vote against his own amendment.

The majority also rejected three other amendments from members of the Democratic minority, including one from Wielechowski that would have stopped SB 26 from taking effect unless it was approved in a public vote.

Democratic minority members said they understood the need for a deficit-reduction plan to help end Alaska's recession and dispel economic uncertainty.

But, they added, they weren't willing to vote for SB 26, saying it would still leave a big deficit and force deeper cuts to state services like education and health care.  And, because there was no accompanying income or sales tax, tourists or workers who live out of state would continue to pay nothing.

"This is not a fiscal plan," said Begich. "This is simply one bill that doesn't actually get us there."

But majority members described the bill as the best remaining option to respond to the state's dire financial circumstances, with oil production declining and its price crashed — oil revenues and royalties once covered 90 percent of state spending. But this year, Walker's administration is projecting $1.6 billion in revenue to cover a $4.3 billion budget.

Lawmakers have also instituted deep cuts in the past two years and proposed more for next year, but Alaskans benefit from state spending on things like roads, ferries and airports, said MacKinnon, who led support for SB 26 on the floor.

"We've been waiting for something to happen — for oil to come up, for something to save our state from having to come face to face with this horrible issue of the cost of state government exceeding our ability to pay for it by almost $3 billion," said MacKinnon, who punctuated her points with charts showing the state's spending, its emptying savings accounts and its unemployment rate.

She added: "We don't have a lot of choices left. We're limiting ourselves by not acting."

The measure's approval Wednesday, about two-thirds of the way through the Legislature's 90-day session, signals lawmakers see the state's financial position — with about two years of cash left in its primary savings account — in increasingly urgent terms.

Last year, the Senate didn't approve its Permanent Fund legislation until early June, on the 15th day of a special session convened by Walker, who's been pressing lawmakers for budget reforms and a deficit reduction program.

Still, even after Wednesday's vote, lawmakers will have to resolve big disagreements before sending a Permanent Fund bill to Walker's desk for his signature.

The House is advancing its own legislation, House Bill 115, to restructure the fund. But the House Finance Committee amended the legislation Tuesday to guarantee a dividend of $1,250 — higher than the Senate's.

HB 115 would also resurrect Alaska's decades-dead income tax — a move Senate Republican leaders have strongly opposed.

"The only thing standing between Alaska and an income tax is the Senate," Kelly, Senate president, said last week.

House leaders say a graduated income tax could balance the effect of dividend reductions, which would hit poor Alaskans harder, by taking more money from high-income residents.

The differences over the size of the dividend and the tax will have to be resolved before one chamber will pass a Permanent Fund proposal from the other. And it's possible any legislation to change the fund will get wrapped into discussions between the House and Senate over their two different budget proposals — making for complex end-of-session negotiations.

The two chambers have also proposed substantially divergent budgets, with the House likely to object to the Senate's push for cuts to the state university system, ferries and health care for the poor and disabled.