Permanent Fund change clears first committee

Posted: Wednesday, March 29, 2000

JUNEAU (AP) -- A bill that would earmark some of the Alaska Permanent Fund's earnings to help balance the state budget passed its first committee Wednesday.

House Bill 411 is part of a larger budget-balancing plan proposed by Rep. Bill Hudson and six other House members. The plan also includes $350 million in taxes on industry and the public, although they have not proposed specific taxes.

Under Hudson's proposal, the $27 billion fund would pay out an amount each year equal to 5 percent of its average market value over the past five years. A quarter of that payout -- about $373 million in 2001 -- would go into the general fund and be available for state spending. The remainder would be used to pay the annual dividend.

The bill would decrease the dividend slightly in the next few years, but then the annual check would increase slightly compared to the current system, Hudson estimates.

The plan does not have the support of the Legislature's Republican leaders, and is given little chance of passage in an election year, especially in light of last year's failed proposal to balance the budget using only earnings of the Permanent Fund.

Nevertheless, the bill passed the House State Affairs Committee 6-1, and many members agreed with Hudson's point that a permanent fix for the gap between state spending and normal revenue must be found to maintain state services, and spur economic development in the state.

The gap is expected to exceed $700 million in the fiscal year that begins July 1.

''We're not going to see any real economic development until we get our budget in order,'' said Rep. Jeannette James, R-North Pole. Like many lawmakers James contends businesses are wary of investing in Alaska for fear of a sudden increase in taxes.

Hudson's bill is a scaled-down version of last year's plan, which was soundly rejected by voters in a September advisory election.

Rep. Scott Ogan, one of the House's four dissident Republicans, was the only member of the committee to vote no, citing the result of that election.

''I won't support any new taxes or any use of the Permanent Fund until I can look my constituents in the eye and say we've done all we can'' to reduce the size of government, Ogan.

Under current law, about half of the five-year average of the Permanent Fund's net earnings are used to pay the dividend. Some of the remainder is used to inflation-proof the fund's principal.

Since the dividend program began, nearly all of the rest of the earnings have either been deposited back into the principal or left in a reserve account.

The bill now moves to the House Finance Committee.

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