Alaska Supreme Court Upholds Governor's Permanent Fund Cuts
By MARY KAUFFMAN
August 26, 2017
The Alaska Supreme Court ruled Friday that Governor Walker properly exercised his veto authority when reducing the legislatively authorized transfer from the permanent fund earnings reserve to the dividend fund, and affirmed the superior court’s decision in favor of the State of Alaska and the Alaska Permanent Fund Corporation.
“I want to thank the legal team here at the department for their hard work on this case,” said Alaska Attorney General Jahna Lindemuth. “I know this is not a decision Governor Walker took lightly, but I’m glad we have more clarity around use of permanent fund earnings as we continue to try and resolve the State’s fiscal crisis.”
In a prepared statement following Friday's ruling, Senator Bill Wielechowski said he is bitterly disappointed in the Supreme Court’s decision regarding the Permanent Fund Dividend. Bill Wielechowski said, "With this decision, any Governor can ignore the mandatory statutory language requiring dividend payments and veto the dividend to whatever level he or she chooses - or eliminate the PFD all together, while any Legislature can similarly cut the dividend to whatever level it chooses. Hundreds of hours of research led me to believe what most Alaskans believe: that this was never the intent of Gov. Hammond or the Legislature that created the PFD laws."
In May 2016 the legislature passed an appropriation bill that included an estimated $1.362 billion transfer from APFC’s earnings reserve to DOR’s dividend fund, consistent with prior practice and the statutory formula.22 But in June Governor Bill Walker exercised his line-item veto power and reduced the estimated $1.362 billion transfer to $695.65 million.23 The legislature met in July but did not vote to override the governor’s veto.24 This resulted in 2016 Permanent Fund dividend payments of $1,022 to eligible Alaskans, about half of what had been expected under the legislature’s appropriation.
A current state senator, Bill Wielechowski, and two former state legislators, Rick Halford and Clem Tillion (collectively Wielechowski), brought suit against the State of Alaska and APFC (collectively the State). Relying on the second sentence of the Permanent Fund clause, Wielechowski sought a declaration that the dividend program statutes contain a constitutionally permissible revenue dedication “automatically” transferring prescribed revenues from the earnings reserve to the dividend fund without need for legislative appropriation and not subject to the governor’s veto. The State opposed, arguing that the 1976 constitutional amendment created an anti-dedication clause exemption only for revenues going into the Permanent
In November 2016 an Alaska Superior Court ruled in favor of Governor Bill Walker's veto cut of the permanent dividend fund from $2,052 per Alaskan to $1,022. Superior Court Judge William Morse's decision ruled against the legislators, concluding the legislature’s actual use of the income remained subject to normal appropriation and veto budgetary processes.
The November 2016 ruling of the Alaska Superior Court was appealed to the Alaska Supreme Court by Bill Wielechowski, Rick Halford and Clem Tillion.
Quoting the Alaska Supreme Court ruling August 25, 2017, after expedited proceedings the superior court ruled that the earnings reserve revenue transfer to the dividend fund requires an appropriation and must survive a gubernatorial veto. The court did not decide whether the revenue transfer would be a “permissible dedication” under the Alaska Constitution. Emphasizing the governor’s strong veto control over spending provided by the Alaska Constitution, the court stated “It is unlikely that the proponents of the Permanent Fund would intend so drastic a change in the governor’s role over the budget by such a vague vehicle” as the concluding sentence of the 1976 constitutional amendment creating the Permanent Fund.
The superior court earlier determined that “what makes the least sense is that the proponents of the permanent fund clause would exempt the income of the Permanent Fund from the threat of a gubernatorial veto without expressly stating that intention.”
The narrow question this case presented for the Alaska Supreme Court's review was whether the 1976 amendment to the Alaska Constitution exempted the legislature’s use of Permanent Fund income from the Constitution’s anti-dedication clause. The Court concluded "no" - the 1976 amendment did not exempt the legislature’s use of Permanent Fund income from the Constitution’s anti-dedication clause.
The Alaska Superior Court upheld the reduction of the permanent fund dividend, but on different grounds than the Alaska Supreme Court. The superior court determined that regardless of whether the earnings of the permanent fund were subject to the constitutional prohibition against dedicated funds, the constitutional appropriations clause required that the legislature appropriate the money, which meant the governor could also veto the appropriation.
The Alaska Supreme Court opinion found that although the Alaska superior court did not reach this question, the superior court’s ultimate conclusion nevertheless was correct: the legislature’s use of Permanent Fund income is subject to normal appropriation and veto budgetary processes.
"Because the plain language of article IX, sections 7 and 15 does not permit the dedication of Permanent Fund income, and because Governor Walker properly exercised his veto authority when reducing the legislatively authorized transfer from the earnings reserve to the dividend fund," the Alaska Supreme Court affirmed the superior court’s decision in favor of the State of Alaska and the Alaska Permanent Fund Corporation.
Article 9, section 7 of the Alaska Constitution is known as the anti-dedicated funds clause. The clause reads: “The proceeds of any state tax or license shall not be dedicated to any special purpose…” with certain exceptions. The Alaska Supreme Court’s opinion Friday clarifies that none of the exceptions apply to the earnings of the Permanent Fund. Any money to be spent from the permanent fund earnings reserve account must go through the normal budgeting process whereby the legislature annually appropriates specific sums of money for certain purposes, and the governor can then strike or reduce those sums under the veto power in article 2, section 15 of the Constitution.
Sen. Bill Wielechowski thanked former Senate Presidents Rick Halford and Clem Tillion who "courageously fought this fight" with him and the thousands of Alaskans who reached out to him and encouraged him to go forward with this case.
Wielechowski said, "Despite the fact I believe the decision was wrong, I recognize and respect the rule of law and the process by which we have arrived at the end of this case."
"This decision highlights the need to put the PFD in the Alaska Constitution," said Wielechowski, "and I will continue in my legislative efforts to do so. I strongly believe the people of Alaska must be given the right to vote on whether the PFD should be constitutionally protected."
Wielechowski said, "If the people of Alaska want to protect the PFD, it is now crystal clear we must elect people who will not just promise to protect it in order to get elected, but who will put action to those words."
Wielechowski said, "I want to make this very clear - this is not the end of the fight to protect the PFD. That I can promise you."
The appeal to the Alaska Supreme Court was heard by Craig Stowers, Chief Justice; Daniel E. Winfree; Peter J.Maassen; Joel H. Bolger; and Susan M. Carney, Justices.
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