Fiscal solution slow to emerge on eve of special session

The gang of eight lawmakers tasked with breaking the ongoing deadlock over the state’s biggest fiscal decisions have gotten detailed Alaska history and finance lessons in recent meetings but have yet to directly confront the longstanding issues that continue to plague the state.

The joint Comprehensive Fiscal Plan Working Group ramped up to near daily meetings in the week prior to the Aug. 2 start of the special session Gov. Mike Dunleavy called to solve Alaska’s structural fiscal imbalance and discussed the fundamental operations of the Alaska Permanent Fund Corp. as well as several existing proposals to revamp the Permanent Fund dividend.

However, the discussions focusing on PFD-related legislation laid bare the fundamental dichotomy that has continued to stall lawmakers.

When outlining House Bill 37 sponsored by Rep. Adam Wool, D-Fairbanks, which would tie the PFD to 10 percent of the annual 5 percent of market value draw on the Permanent Fund and 30 percent of state mineral royalties and result in near-term PFDs in the $1,000 per person range, Wool and others acknowledged the sticking points that emerged in the group members.

Working group co-chair Rep. Jonathan Kreiss-Tomkins,D-Sitka, said debate between Wool and Rep. Kevin McCabe, R-Wasilla, over whether or not Alaskans are entitled to a certain level of dividend “effectively outlined the philosophical differences” that have dogged the Legislature since former Gov. Bill Walker first proposed changing the dividend calculation in 2016.

McCabe insisted that income from the Permanent Fund “belongs to us (the public); it doesn’t belong to the state.”

Wool countered that “the PFD is a budget item just like education and public safety,” a stance held by many legislators since the Alaska Supreme Court in 2017 upheld former Gov. Bill Walker’s partial veto of the dividend appropriation a year prior and effectively confirming the PFD’s position in the state operating budget.

“At some point we’re going to have to solve this thing,” Kreiss-Tomkins said July 26.

Legislative leaders said in the working group’s opening meeting in early July that they are relying on the bipartisan, bicameral group to formulate a plan that will be the base for legislation in the special session. It is a move intended to give substance to the group’s efforts after prior special committees failed to produce substantive results.

The working group heard testimony July 27 from leaders of the Alaska Permanent Fund Corp.’s advisory firm Callan, who suggested the recent surge in commodity and labor prices is more likely the short-term consequence of disrupted supply chains attempting to match rapid economic recovery and will probably balance out, rather than lead to years of high inflation; that is a subtle key in attempting to preserve the long-term value of the Fund.

Callan CEO Greg Allen told legislators that the firm’s official outlook is for inflation to average 2 percent per year, but it could be increased slightly to 2.25 percent.

Some legislators, notably influential Senate Finance co-chair Sen. Bert Stedman, R-Sitka, and the Permanent Fund Defenders advocacy group led by former legislators Clem Tillion and Rick Halford, among others, have contended a 4 percent annual draw limit is more appropriate to protect against inflation eroding the value of returns and poor market years.

Callan also projects there is about a 50 percent chance the Fund will fully maintain its real value over the next decade based on market forecasts and the investment makeup of the fund, according to Allen.

The working group is scheduled to take public testimony on the numerous aspects of the state’s fiscal situation in Anchorage, Wasilla, Fairbanks and Juneau in the days leading into the 30-day special session, which will start Aug. 2 according to Dunleavy’s spokesman Jeff Turner, despite prior indications from legislators it could be pushed back to give the group more time.

“It remains the governor’s intention to start the special session on Aug. 2. Determining the future of the Permanent Fund and the PFD are the rocks in the road that need to be moved to create a stable fiscal future for Alaskans,” Turner wrote July 27 via email.

It appears the public testimony will be held without a formal proposal from the working group for individuals to evaluate. Kreiss-Tomkins said following the July 27 meeting that the group is holding internal discussions on how to build its plan, though nothing has been decided.

Elwood Brehmer can be reached at [email protected].

Updated: 
07/27/2021 - 7:22pm