By one vote, the nine-member Kenai Peninsula Borough Assembly decided Tuesday night not to oppose a resolution being considered by state lawmakers that would amend the Alaska Constitution to establish a percent-of-market-value system for handling the Alaska Permanent Fund.
Following a lengthy debate, five assembly members said they would rather wait to see what emerges from Gov. Frank Murkowski's proposed "Conference of Alaskans," a 55-member panel yet to be named that is to meet next month to discuss whether and how to use fund income to help balance the state budget.
Senate Joint Resolution 18 and its companion measure, House Joint Resolution 26, would send a constitutional amendment to voters next fall to limit spending from the fund and alter the way the fund is measured to a percent-of-market-value system, or POMV. It would prohibit such spending unless the annual amount appropriated was "predictable and limited so that the real value of the permanent fund is preserved over time."
It would limit appropriations from the fund in any fiscal year to no more than 5 percent of the average of the fiscal year-end market values of the fund for the first five of the preceding six years. It also would place the balance of the earnings reserve account into the corpus of the fund itself.
Assembly member Betty Glick of Kenai sponsored assembly Resolution 2004-006 that opposed the Legislature's joint resolutions unless they were "amended to guarantee direct voter participation in the determination of future dividends and legislative appropriations of the permanent fund." The resolution also called for provisions against inflated valuations of fund assets and assurances that steps would be taken to inflation-proof the principal.
In the past, voters have overwhelmingly rejected legislative proposals to tap the fund. Even with assurances that no money would be used until after dividends are paid and inflation-proofing accomplished, 83 percent of voters in 1999 said "hands off," Glick pointed out in the text of the resolution.
She said SJR 18 proposes changes to the fund's dividend program without addressing citizen concerns, and provisions of the POMV plan would eliminate the Earnings Reserve Account, the source of dividend funds, and existing provisions for inflation proofing.
Under the POMV plan, the earnings reserve funds would be placed in the body of the fund. Money available for dividends and state spending would be determined by the value of the entire fund, earnings and all. The permanent fund trustees have said the POMV automatically would inflation-proof the fund, lead to less volatility in the value on which dividends depend, eliminate a temptation to take profits early and make payouts possible even in the absence of earnings.
In a memo to the assembly, Glick said that despite the trustees' support she believes a majority of borough residents oppose the POMV plan because they think it would put the fund's principal at risk. She said many residents have little or no understanding of what a POMV system entails, and, she said, judging from comments by lawmakers, many of them may hold conflicting ideas as well. She said the POMV program may be laudable as envisioned by the trustees, but said the Murkowski administration continues to imply that the POMV by itself achieves other policy objectives, such as bridging the fiscal gap, extending the life of the Constitutional Budget Reserve and guaranteeing dividends.
"Apparently, it would do none of these things," Glick said. She urged passage of the resolution to oppose SJR 18 at this time.
Assembly member Ron Long, of Seward, said taking such a stand now would be premature and unnecessary. A committee substitute for SJR 18 appears to address some of the inflation-proofing concerns raised by critics, and, at its root, SJR 18 isn't about a state spending plan, but focused on a better and more modern methodology for fund payouts that would protect the value of the principal, he said.
Long said the permanent fund has grown so large that with the decline in oil production and the revenue stream it provided, it has become the number-one generator of wealth in Alaska. The POMV proposal recognizes the new reality and would provide a more adaptive strategy for its use, he said.
That the current valuation method is volatile was demonstrated last year when it appeared early on that there might be no dividend checks at all. Long said that had the dividend been computed on a different day last year, the fall payout to Alaskans would have been "zero, zip, zilch, nada." SJR 18, he said, would take away that volatility.
He said it makes no sense to him to reject a methodology that would protect the fund and improve the payout method to Alaskans simply because some politicians want to get their hands on the permanent fund dividend money. Lawmakers always have and likely always would want access to the money that goes to dividends. Nothing in SJR 18 would change that fact, he said. What would deter them is what has always deterred them fear of voter retribution.
"Until it's locked into the Constitution, they'll always want to get their hands on it," he said. "Probably even after."
Long said Glick's resolution would send a message to state lawmakers that the assembly and peninsula residents believe they have hidden agendas and can't be trusted.
"That's a tough message. It's bad and it's irresponsible," he said. "If I were in their shoes, it would take the utmost will for me to set that aside when this body came and visited and asked me ... as we are about to in our package, for fiscal assistance in an amount about equal to the budget deficit."
Glick said she is in agreement with many of Long's comments. But, she said, the assembly should oppose the Legislature's move "at this time," until Alaskans had gotten "a clear explanation as to exactly how the POMV would be implemented."
Assembly member Gary Superman of Nikiski said he'd been asked by a constituent to be a co-sponsor of Glick's resolution, but had declined because he was "not a purest" when it came to the sanctity of the dividend. Indeed, Superman noted that the fund, as originally conceived, was meant to provide funds when declining oil revenues could no longer pay for what lawmakers knew would become a much larger and more spendy state government.
"However, I am very reluctant to get behind the concept of the POMV," he said. "With this concept we are opening a Pandora's Box."
He said it isn't clear what the money made available for spending by the POMV system would be spent on.
"That's the open-ended question, and the one that needs to be answered right up front," he said.
Assembly member Paul Fischer of Kasilof said the POMV system might start out with a 50-50 split, half the money going to dividends, half to spending. But it wouldn't stay that way, he warned.
"The appetite of the state is going to grow," he said.
He also said Murkowski's Conference of Alaskans would come out with a recommendation for some kind of POMV. The assembly should notify the conferees and the Legislature that it is not in support, he said.
Assembly member Chris Moss of Homer said regardless of what emerges from the conference, and ultimately from the Legislature, in the way of ballot language, Alaska voters would have the final say. If the POMV is explained well and convinces enough voters, it would pass. If not, voters would say no. For that reason, he said, he would oppose Glick's resolution.
Assembly member Grace Merkes of Sterling said she has mixed feelings about Glick's resolution, but thinks it premature.
Milli Martin, assembly member from Diamond Ridge, said she thinks the POMV could provide stability and that is where SJR 18 was heading.
Assembly member Dan Chay of Kalifornsky attempted to postpone a vote on the measure until February, but that effort failed.
When Glick's resolution finally came up for a vote, members Long, Martin, Moss, Chay and Merkes voted against the resolution opposing SJR 18, sending it down to defeat. Assembly members Sprague, Fischer, Glick and Superman voted for the resolution.
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