Alaska’s top financial official says the governor’s plan to evenly split Permanent Fund earnings between dividends and state operations is a path toward stability.
Lucinda Mahoney is the Commissioner of the state Department of Revenue. Mahoney was in Sitka (6-9-21) to sell the Chamber of Commerce on the 50/50 plan, and the governor’s hopes to enshrine it in the Alaska Constitution.
You could have been listening to the news in Alaska over the past couple of years with only half an ear, and still know that the state’s finances are in trouble. The state has been dipping into its reserves to make ends meet since 2016, and that well is running dry.
“So we have a problem,” said Mahoney. “And we have a structural problem. And the governor recognizes that we need to fix this problem.”
The fix involves using earnings from the state’s huge Permanent Fund — which currently stands at $81 billion — to balance the budget, while still cutting an annual dividend check for more than $2,000 to every resident of the state.
The governor’s strategy is one that has been discussed for years: It’s called Percent of Market Value, or withdrawing up to 5-percent of the Permanent Fund a year, and splitting that withdrawal between state government and residents.
But there’s a catch — actually two. Taking out just the 5-percent of the Permanent Fund next year won’t cover the state’s deficit. There’s got to be a bit more the first time, according to Mahoney.
“In order for that plan to work, there needs to be a one time draw from the permanent fund itself of $3 billion,” she said. “And this would be above what the normal 5-percent that the permanent fund currently uses. And so there is a recognition that this is unstructured. But the governor is focusing on this being a one time only draw that will enable the state to get on footing and become much more sustainable.”
That second catch: Oil royalties are the state’s principal source of revenue, and they are notoriously volatile. The governor has finally acknowledged that the state needs a sustainable revenue stream.
“I also want to point out that as a part of his plan, there would be a requirement for new revenue measures,” said Mahoney. “And that would be about $300 million. That is our estimate at this point in time. However, the governor believes that we can accomplish this without having to implement a broad based sales tax or income tax.”
The governor has called the legislature into special session to hopefully hammer out an agreement on the plan, and ultimately to draft a constitutional amendment to put before voters in November of 2022. It’s a tall order, even though Percent of Market Value has broad support among legislators.
Former Sitka chamber board member Dan Jones was the only member of the public to express concerns to Commissioner Mahoney following her presentation, and those concerns are likely shared by many in the capitol.
“I appreciate that the governor wants to have a comprehensive plan and a comprehensive resolution to the problems that he has actually caused over his time in government,” said Jones, “So I’m glad you’re talking about it.”
Jones was leery of where the governor’s plans for $300 million in additional state revenues would land. If, despite assurances, it is a statewide sales tax, Jones said that would hurt communities like Sitka that already have sales taxes. Instead, Jones favored an income tax, which also would tap the paychecks of nonresidents who earn a living in Alaska, but don’t live here.
He also was hesitant about Percent of Market Value — not the idea, but the number. “Be careful about that 5-percent of market value,” Jones urged Commissioner Mahoney. “Because that’s big.”
Mahoney closed her remarks to the Sitka Chamber by urging the community to speak out, because the plan won’t be permanent — it won’t be in the constitution — unless voters put it there. And nothing gets the attention of voters like their permanent fund dividend checks.
“The challenge that we face, you know, as a state in discussing our fiscal situation is largely based around this dividend,” said Mahoney. “And in some circles of conversations, some people don’t support a dividend. Some people support a full dividend. Some people support the half dividend, which is what the governor is proposing here. Everybody has an opinion about it.”
And, said Mahoney, the governor wants to hear those opinions.