Committee hears competing PermaFund plans

Posted: Thursday, March 23, 2000

JUNEAU (AP) -- Competing visions of the Permanent Fund's future dueled Wednesday in a Senate committee.

Sen. Jerry Mackie presented his plan to pay out half the $27 billion fund in $25,000 dividends next year, then end the dividend program forever and use the earnings on the rest of the fund to balance the budget.

''The public has taken an attitude that the Permanent Fund is only there for their Permanent Fund dividend,'' said Mackie, R-Craig, repeating his belief that the big payout is the only way the public will allow the fund's earnings to be spent on government. ''It is at least an incentive, a negotiation with the public to try to break that hold.''

Then Sen. Lyda Green plugged her proposal to protect the existing dividend program by putting it into the constitution. Green, R-Mat-Su, contends the dividend must be protected before lawmakers can even begin talking about spending the fund's surplus earnings.

Roughly half of the fund's average annual earnings over the past five years is used to pay the dividend, which increased to a record $1,769.84 last year. While the fund itself is protected by the constitution, the dividend is governed by laws that could be changed by the Legislature at any time.

''Let this wonderful program continue by not paying out a one-time $25,000 dividend,'' Green said. ''With this simple revision, nothing changes. It continues as it is.''

The Senate Finance Committee didn't vote on either idea, but peppered the sponsors with questions.

The future of both measures in the Legislature is uncertain. Both are constitutional amendments, so they would need two-thirds votes in the House and the Senate and a statewide vote in November to pass.

For Green, the questions focused on the possible tax implications of her plan. The fund's earnings are currently not subject to federal taxes, but Ron Lorensen, an attorney for the Alaska Permanent Fund Corp., warned that might change if the dividend were enshrined in the constitution.

Such a protection would give people a constitutional right to the dividend and prevent the Legislature from doing anything else with the money, Lorensen said, increasing the risk that the Internal Revenue Service might try to tax the fund.

''When you create a private interest in governmental funds, you lose the governmental tax exemption,'' Lorensen said.

Green disputed that conclusion, noting that her proposal still leaves the Legislature the power to change who is eligible for the dividend.

''There's no proof the IRS will tax the Permanent Fund any differently,'' Green said.

The questions aimed at Mackie ranged from the big tax bite the IRS would take from the mega-dividend to the prospect that many people might take the money and leave the state.

Mackie conceded the tax burden was probably unavoidable, and said Alaska would be better off without people who only live here because of the dividend.

''I say don't let the door hit you in the butt on the way out,'' Mackie said.

Sen. Loren Leman, R-Anchorage, and Green also asked Mackie whether he thought it was appropriate that people who received the big check would still qualify for welfare, Medicaid and other public assistance programs.

Mackie responded by citing Health and Social Services Commissioner Karen Perdue's belief that many welfare recipients would use the money to get themselves off welfare permanently.

Another committee member asked whether the plan would be unfair to future generations of Alaskans.

Mackie conceded that point, but countered that there's no guarantee the dividend will survive after the next few years, when a gap between state spending and other revenue is expected to eat up the smaller reserve that is used to balance the budget.

''The Legislature is going to have no choice but to tap into the earnings,'' Mackie said.

Sen. Pete Kelly, R-Fairbanks, came to Mackie's defense.

''The question is, do future generations get a check? Well no, but they do get schools, the university and public safety.''

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