House Finance passes two bills to use Permanent Fund revenues

Posted: Sunday, March 24, 2002

JUNEAU (AP) -- A House committee approved two bills that would begin closing the state's projected $1 billion budget shortfall with Alaska Permanent Fund earnings.

Lawmakers have never taken more than a few million from the permanent fund's $2.4 billion earnings reserve account for state government, many considering it too politically risky.

But Alaska faces an expected $1.1 billion budget shortfall next year and its Constitutional Budget Reserve is expected to be drained by 2004.

The House Finance Committee approved a bill on Friday to split the permanent fund earnings between paying dividends to Alaskans and putting money into the state's general fund ostensibly for education and capital projects.

Another bill would use $59.6 million for municipal dividends to local governments replacing state contributions to existing programs.

''We may have the beginnings of a balanced fiscal plan for the state of Alaska that will carry on for the next 10 years,'' said Rep. Bill Hudson, R-Juneau.

Hudson sponsored an amendment to create a 45-55 split in the fund's earnings to give $960 million to state government and another $786 million to dividends in the first year.

House Bill 304 creates an automatic method of inflation proofing the permanent fund principal by reserving 5 percent of its market value for dividends.

Permanent Fund Corp. Spokesman Jim Kelly said the fund is expected to average 8 percent in returns in the future, leaving behind 3 percent to protect the principal from inflation.

But the bill would take additional revenues for state government in the first two years by drawing 7 percent of market value in 2002 and 6 percent of its value the following year. Later years it would split a 5 percent level between state government and dividends.

Lawmakers intend to use additional funds from the earnings reserve account in the first year to ensure 2002 dividends remain at the projected $1,540.

Dividends would rise over the first two years, but then begin to steadily drop in value over the next eight years, according to figures provided by the House Finance Committee.

In the first two years, Alaskans would receive $250 more in their dividend checks, receiving most of that in fiscal 2004, figures show.

But after that, dividends would begin dropping dramatically, falling to an estimated $1,146 in fiscal 2010, which is $564 less than under current projections.

Rep. Eldon Mulder, R-Anchorage, has long been a supporter of using permanent fund earnings for government and co-sponsored the bill.

Mulder said the plan will help Alaska dig its way out of a chronic budget shortfall that tax supporters claim threatens the permanent fund dividend program.

He said a 1999 advisory vote in which Alaskans overwhelmingly rejected using the permanent fund to aid state government should not guide lawmakers.

''If we merely based our actions today on the voters preference in '99, we would do nothing until we ran off the cliff,'' Mulder said.

Alaska has used more than $4 billion from its Constitutional Budget Reserve to make up budget deficits in the past and the state Department of Revenue estimates the fund will be empty by 2004.

As a drop in oil production -- which accounts for about 80 percent of the state's revenues -- continues, lawmakers are increasingly looking to more stable revenue sources.

''My preference is that we look at the Permanent Fund earnings first because I think that's what they were truly created for,'' Mulder said.

A bill to impose a 3 percent statewide sales tax is poised to go to the House floor next week despite objections from Democrats and some Republicans.

Rep. John Davies, D-Fairbanks, said a sales tax is too regressive since poor Alaskans would pay a greater share of their income in sales tax than the rich.

Davies served on a bi-partisan Fiscal Policy Caucus that resolved this summer to attempt to balance new revenue proposals evenly between the Permanent Fund and taxes.

He said House Democrats are unlikely to back a plan to give a greater share of Permanent Fund revenues to the state and impose a a regressive sales tax.

While Republicans can count on a 28-12 majority in the House, GOP leaders will need Democrats to get a fiscal plan passed, Davies said. House leaders earlier estimated up to nine Republicans in the House remain opposed to any new taxes this year.

''If it's 55-45 (Permanent Fund split) and a regressive sales tax, I don't think we will be supporting it,'' Davies said.

The plan faces an uphill fight anyway since both Democrat Gov. Tony Knowles and Republican Senate President Rick Halford are opposed to using Permanent Fund earnings to balance the budget.

Halford has remained a staunch protector of the Permanent Fund and said this week that the plan would be in peril in the Senate.

''I think that's probably the last thing we ought to be looking at at this point,'' Halford said Tuesday.

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