Alaska House Passes Budget; Reduces PFD From $2,700 to $1,600
Proposed FY 2019 Budget Includes More Money for Public Safety, Fully Funds Education
By MARY KAUFFMAN
April 04, 2018
The PFD amount changed by the House adopting Representative Paul Seaton's (R-Homer) compromise amendment creating a 5.25% ERA draw that would provide a PFD of $1,600. This 5.25% ERA draw of $2.7 billion is sustainable according to the House Majority Coalition on a short-term basis and provides $1.7 billion for public services and $1.0 billion for PFDs. The draw from the Constitutional Budget Reserve to fill the deficit is reduced from $756 million to $708 million.
House Bill 286 passed the Alaska House of Representatives on Monday by a vote of 21-19. Voting in support was Rep. Dan Ortiz (I) of Ketchikan. Also voting in support was Representative Jonathan Kreiss-Tomkins representing Sitka and 21 other rural Southeast Alaska communities. The operating budget bill has been sent to the Alaska State Senate for consideration.
According to the Alaska House Majority Coalition, House Bill 286 largely maintains the current level of essential services, fully-funds Alaska’s Base Student Allocation (BSA), includes additional resources to keep Alaskans safe in their homes and businesses, and authorizes the payment of a $1,600 Permanent Fund Dividend to eligible Alaskans. The House’s operating budget features total General Fund spending of $5.35 billion. $942 million is moved to the principle of the Alaska Permanent Fund to inflation-proof the value of the fund.
This budget will cut the PFD amount by a little over 50%. The April 2nd budget includes $1.02 billion to be used to fund Permanent Fund Dividends of $1,600 for eligible Alaskans. This amount is different than the amendment adopted by the Alaska House last Monday, March 26th. That amendment would have resulted in a $2,707 PFD, the old statutory formula amount.
The proposed FY 19 state operating budget uses the rules-based Percent of Market Value (POMV) approach to access the earnings of the $66 billion Alaska Permanent Fund to pay for the essential services that Alaskans demand of their state government. The 5.25 percent draw totals $2.7 billion. $1.69 billion will be used to help pay for state services like public education, State Troopers, fish and game management, and road maintenance.
Governor Bill Walker in a prepared statement said, “I commend the House for passing an operating budget that protects the necessary government services Alaskans rely on, and I look forward to working with lawmakers as the budget process now moves into the Senate. All sides agree it is necessary to tap the earnings reserve of the Permanent Fund to help pay for government moving forward. It is essential that the first draw from the Permanent Fund in history is structured, sustainable, and protects the future of the dividend program.”
“This budget shows the commitment of our Coalition to safeguard the Alaska Permanent Fund and Alaskans’ PFDs. We followed the advice of the experts to inflation-proof the fund and limit the draw from earnings to a sustainable level. I am especially pleased that our budget includes a significantly larger Permanent Fund Dividend than last year, which will help boost our lagging economy and put extra money into the pockets of Alaskans struggling to make ends meet,” said Speaker of the House Rep. Bryce Edgmon (D-Dillingham).
“By passing this budget, our Coalition showed that we are realistic about the fiscal challenges facing Alaska. We also showed that we are unafraid to make tough choices. Alaska is currently saddled with an oil tax system that lets oil companies retain the largest percentages of total oil revenue in the history of Alaska. At current and projected oil prices this system simply will not fund the kind of Alaska that we all want. We chose the responsible course to develop and pass a budget that augments our dwindling oil tax revenue with the responsible use of the Earnings Reserve account of the Alaska Permanent Fund,” said House Finance Committee Co-Chair Rep. Paul Seaton (R-Homer), who was tasked with guiding the operating budget through the legislative process in the Alaska House.
“I hope the Senate Majority will soon join the Alaska House Majority Coalition in confronting the remainder of our multi-billion-dollar deficit by diversifying our revenue through a comprehensive fiscal plan,” said Rep. Seaton.
Hearings were scheduled by the Alaska Senate Finance Committee for Tuesday, April 2nd on House Bill 286 but not heard. Additional actions are scheduled for today, April 4th.
As mentioned above, last Monday, March 26th, the Alaska House adopted an amendment that would have resulted in a $2,707 PFD, the old statutory formula amount. The 21-19 vote on March 26th split both the Minority and the Majority caucuses and resulted in an inability to secure the votes needed to pass the operating budget over to the Senate last week.
Representative Seaton (R-Homer) wrote in an April 2nd newsletter: "At $2,700 per qualified Alaskan, total PFDs would have cost $1.7 billion. Adding the $1.65 billion for public services, the overall draw from the ERA would have been $3.35 billion. That is equivalent to a 6.5% ERA draw, which is unsustainable. Presentations in House Finance by Alaska Permanent Fund Corporation and our Legislative Finance Division have repeatedly stated that long-term draws over 5% put our ERA and future PFDs at risk. With the proposed draw of 6.5%, that could happen in 3 years."
Seaton wrote, "Lowering the PFD alone without a progressive income tax has a greater impact on lower income families as it represents a higher portion of their income. I continue to support the comprehensive sustainable fiscal plan passed by the House Majority Coalition last year which balances temporary lower PFDs with new revenues to help fund the needs of Alaskans."
Alaska House Finance Committee Co-Chair Rep. Seaton used the April 3, 2018 Alaska House Majority Coalition press availaiblity to announce that the Finance Committee will soon begin work on a much-needed fix to Alaska's oil tax system. The new bill will build on the work done last year to pass House Bill 111.
On March 23, 2018, the Alaska Senate passed a bill to limit the growth of state spending. SB 196, sponsored by the Senate Finance Committee, caps the unrestricted general fund spending at $4.1 billion. The House is proposing approximately a general fund spending at $4.5 billion.
The Alaska Senate will now decide if a 7% increase of the unrestricted general fund passed by the Alaska House will be supported. The Senate will also decide if it will allow the Alaska House's proposed $1,600 PFD to stand or if the Senate will make changes.
Approximately a $2.3 billion budget gap still must be addressed. The legislature has about two weeks left in the statutory 90-day session limit.
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