Legislators in Juneau have taken the first steps toward addressing the state’s structural fiscal problems and the Permanent Fund Dividend, or PFD.
On Wednesday the Senate Judiciary committee moved bills changing the PFD funding formula to the so-called “50-50” plan, dividing equally the annual payment to the state from Permanent Fund earnings between support for the budget and funding the dividend.
Three bills were also introduced to raise new revenues. Two would raise taxes on the oil and gas industry while a third would enact a statewide sales tax.
The PFD funding change in the Senate is contingent on the Legislature also approving a Constitutional amendment for the PFD, raising $160 million in new revenues, and implementing other elements of a bipartisan working group that met for several weeks prior to the Aug. 16 start of the special legislative session now underway.
Most legislators feel it’s high time for movement in a long-term resolution of the PFD issue. Most lawmakers and the governor want to settle the question because it is diverting too much time and attention from other state business.
Sen. Shelley Hughes, R-Mat-Su, the Senate Majority Leader, vented her frustration in a recent briefing to Commonwealth North, an Anchorage business group that focuses on public policy.
Hughes said her efforts on state education initiatives, along with Sen. Tom Begich, D-Anch., the Senate Minority Leader, are stymied with the dividend taking up so much attention. Hughes also wants to work on legislation related to sex trafficking, but there’s little time for that, either.
Meanwhile, the state House is now moving bills, too. The House passed a revised budget blll Tuesday, Aug. 31, that set the dividend at $1,100, although the vote was contentious.
There’s still a catch on HB 3003, the bill that passed, however. It is that the dividend is funded about half from state general funds with the remainder from the “Statutory Budget Reserve,” or SBR, a savings account.
There are questions, however, as to whether there is enough money is left in the SBR to help pay the dividends. There was a complex set of budget maneuvers including vetoes by the governor, the end result being that there’s still uncertainty about the status of funds in the account.
If SBR money isn’t available there’s enough general fund support for a $600 PFD.
HB 3003 is in the state Senate now and senators will have their own views on the dividend and how to fund it. In late June the Senate and the House approved a $1,100 dividend, but that bill required a withdrawal from the Constitutional Budget Reserve, a different reserve account than the SBR now being considered as a PFD fund source.
The difference between the two is that taking money from the CBR requires a three-quarters legislative vote with 30 of the 40 state House members are needed. In late June the Republican Minority in the House, which numbers 19, blocked the use of the CBR as part of a push to get the Democrat-led House Majority to consider the governor’s 50-50 plan and his constitutional amendments.
An SBR withdrawal only needs a majority of the House members, or 21. There were sufficient votes for that on Tuesday, although barely. There were knife-edge tight House floor votes on amendments raising the PFD as HB 3003 passed last Tuesday, Aug. 31.
Gov. Mike Dunleavy will still weigh in, too. He vetoed funds for a $525 PFD in early July, the amount of general funds left after the House Minority blocked the CBR as a fund source.
Dunleavy may veto it again, which would mean either no dividend this year or the governor’s hauling the Legislature back to a fourth special session after the current one ends Sept. 15.
What has tied things up is that people have different ideas on a grand bargain on the dividend question. The governor’s idea is a constitutional amendment, in HJR 6 (the House version) and SJR 7 (the Senate version) that would constitutionally guarantee a PFD along with its funding using the new 50-50 funding formula.
There’s sharp disagreement, however, on whether it is appropriate to put a spending program, and a spending amount, in the constitution. The Legislature now directs all spending though appropriation bills.
However, differences of opinion are so strong on the issue that some feel only way to really settle it is to put the PFD in the Constitution.
The governor’s plan is one of many ideas being tossed around and most, including Dunlevy’s plan, would create budget deficits and require new revenues.
To that end, the first revenue bills were introduced in the House Monday, Aug. 30. One is a bill altering the state oil and gas production tax and raising the minimum tax North Slope producers pay so more revenue is generated. Another enacts a 2 percent statewide sales tax.
House Bill 3005, the oil tax, was introduced by Rep. Geron Tarr, D-Anch. with Rep. Harriet Drummond, D-Anch. as cosponsor. HB 3006, the sales tax, was introduced by the House Ways and Means Committee.
A revenue bill was also introduced in the Senate that would indirectly raise petroleum taxes as well as state fuel taxes. Senators Tom Begich of Anchorage; Elvi Grey-Jackson, also of Anchorage, and Donny Olson of Golovin, near Nome, sponsored the bill. All are Democrats.
Senate Bill 3002 will increase the motor fuel tax from $0.08 per gallon – the lowest in the nation – to $0.16 per gallon, which would then rank Alaska 43rd in the nation for its fuel tax, Begich said.
The bill would also decrease the oil and gas per barrel tax credit from $8 to $5 and change the state corporate income tax law by requiring companies organized as “S” corporations to pay a tax equivalent to the 9.4 percent state corporate income tax rate paid by ordinary “C” corporation. Only one major Alaska oil producer – Hilcorp Energy – is an S corporation. The other major producers are C corporations.
Combined, these revenue measures would begin generating approximately $250 million next year for the state, Begich said. Given that no Republican has introduced a revenue bill, not has the governor, the future of these seems uncertain.