The Big Stuff The Big Stuff April 30, 2023 Dear Friends and Neighbors, The session has hit triple digits now—Friday was day 102 of 121. With Finance meeting twice per day, other committees still hearing bills, and some of my own legislation up for hearings in the House, there are several times this coming week I need to be in three places at once. With sop many irons in the fire, let's check in and keep track of the big pieces. SJR 11 is my resolution to ensure Alaska has a say in setting responsible oil spill-prevention regulations. It passed the Senate unanimously Friday! Budget Betterment Last week’s newsletter was all good news—so here's some more. The Senate Finance Committee made big improvements to the operating budget this past week. The version the House of Representatives passed us had issues. Along with a roughly $600 million deficit, there was no way to pay for the K-12 funding boost. The senate version is balanced, and boosts public schools by about $180 million next year. That's like a $680 increase to the base student allocation. There are some other really important additions. We put in $15 million for child care providers. Quality child care is crucial for Alaska families. It’s important for businesses, too. No child care means parents can’t go to work. We also added funding for the Alaska Seafood Marketing Institute, which helps sell wild Alaska seafood around the world. There were some important cuts, too. We took out the funding for “404 primacy.” That's the governor’s proposal to spend a minimum of $5 million per year to take over permitting for dredging and filling wetlands. Today, the federal government handles these permits at no charge. Dozens and dozens of you wrote to me opposing spending money to take it over. The house version of the budget funds this idea, so stay tuned! We also cut a proposed new attorney job at Department of Law. This one was to advise parents on how to sue Alaska school districts. Instead, the senate version of the budget puts those dollars toward a new prosecutor focused on missing and murdered indigenous people. Importantly, our budget is balanced without drawing on savings. Assuming the spring oil price forecast holds, it has about a $90 million surplus. We manage that by splitting the sustainable draw from the permanent fund 75/25. That 25% for PFDs pays each Alaskan a check of about $1300. The House budget is double that. From here, the operating budget goes to the senate floor. Then a conference committee will to work out the differences between the house and senate budgets. With a little more than two weeks to go, the timing is tight but possible. Pension Bill Progress SB 88 is the bill to return Alaska public employees to a real defined benefit pension. It moved out of the Senate Labor & Commerce Committee Friday. They left no stone unturned, holding eight hearings and taking lots of public testimony. They also invited expert testimony from both supporters and opponents of public pensions. The overall purpose of the bill is unchanged as it heads to Finance. Despite loads of technical tweaks, there were only a few changes that really impact the bottom line. First, the portion of salary an employee contributes increased from a minimum of 8% and maximum of 10% to an 8-12% range. That shares more risk with workers to ensure the new pensions stay fully funded. The second major change creates an incentive for retirees to stay in Alaska. If a retiree moves out of state, the annual inflation adjustment on their check gets cut in half. And the bill's definition of living here would be the same as the PFD. That's a whole lot tighter than old pension tiers. SB 88 moves to the Senate Finance Committee next. We start hearings on it this week! On Monday SB 12, the Address Protection bill, passed the Senate unanimously! Out with the Old Last week I updated you on the bill to rewrite the PFD formula. Some of you got in touch to let me know I was a little murky about just what I think is wrong with the 40+ year-old way of calculating it. I apologize. Let me try again: Most of you know Alaskans created the permanent fund by constitutional amendment in 1976. The constitution dedicates a sliver of our mineral royalties to the principal of the fund. It also prevents the legislature from spending that principal. The money gets invested and the earnings go to the general fund. (First we hold those earnings in a reserve account at the Permanent Fund Corporation. But every nickel of that reserve is spendable with a simple majority vote of the legislature.) In the early years, the legislature put strict limits on how the fund could be invested. Safety first was the rule: government bonds, and cash-like short-term investments only. But it quickly became clear Alaska could grow our savings a lot if we took a few calculated risks. In 1983 we decided to get into the stock market and buy commercial real estate. By 2005 the legislature had gradually replaced all restrictions with the “prudent investor rule.” That basically tells the fund to be as careful as other professional investors. Take smart risks, but don't go nuts. So now along with stocks and bonds (both foreign and domestic,) real estate, and cash, there are investments in hedge funds, infrastructure, venture capital, private equity, and so forth. It worked great. By 1998, Alaska was making more from fund earnings than from oil. Today there's more than $76 billion in the fund. What does that all have to do with the dividend? Lots. After an initial, unconstitutional attempt to tie the PFD to a person's length of residency, the legislature of the 1980s decided to send a piece of the fund's earnings out as checks. They wrote a formula based on the average "statutory net earnings" from the past five years and sent half of that to Alaskans. When the formula was written, the fund owned bonds and certificates of deposit and money market-like investments. Figuring out the net income was easy. You combine the interest payments on bonds and cash, plus the earnings you realize if you sell a bond before its maturity date, and you're basically done. There was a minor complication when we got into stocks. If the fund bought shares in a company for $30 each and they were worth $40 when we sold them, the extra $10 per share was "realized" as income when we sold, even though the value of the entire permanent fund included the whole value of the stock before we turned its increased value into cash. But it didn't make a difference to what we paid out. And besides, stock prices are posted daily, and the fund traded stocks all the time. It's not like any one company's shares made a huge difference. Now that the fund is invested in stuff you don't trade every day, or even every year, it gets more complicated. Here's an example. After the 2008 crash, the permanent fund got together with some other very large investors and bought up a few thousand foreclosed houses. It made some money from rental income over the years. The rent checks count as realized earnings—easy so far. Over the years, the value of the houses grew a lot. We reported the fund being worth more as a result. But we still owned the houses, so the growth was 'unrealized' gains. Then the fund decided to sell its stake in those homes. We got a lot of cash from that, but the total value of the Alaska Permanent Fund was the same the day before the sale as it was the day after. The difference? We 'realized' all our gains, so the net income of the fund went through the roof. Under the old PFD formula, we would have plopped an unsustainably large chunk of those gains into the spendable part of the fund instead of reinvesting them. That's dangerous to the long-term value of the fund. If we send out mega checks (or use it as a windfall for other government spending) every time we rebalance our assets, we’re going to take more from the fund than it can bear. The real value of the fund would decrease over time. Our state took a partial step away from that in 2017 when we limited how much can come out of the fund in any given year: 5% of the market value (averaged over several years.) We're living within that cap, which is good. We still need to change the PFD formula to match. All my best, Did someone forward you this newsletter and now you want your very own copy? Did you fall into it through the series of tubes but now you want it sent straight to you? SUBSCRIBE Events & Happenings Around District B Juneau Jazz & Classics The 16-piece Julia Keefe Indigenous Big Band, blues concerts and dances with Phil Wiggins, classical concerts and classes with Zuill Bailey and more! Some free events, others are ticketed. May 5-13 Juneau Chilkat Weavers Exhibition The City Museum is hosting a free reception for the Chilkat Weavers Exhibition! Witness three generations of Chilkat weavers on May 5 at 4pm! Juneau Alzheimer’s Association On May 1, visit the Mendenhall Valley Library at 6:30pm to learn more about the latest in Alzheimers and Dementia research. Juneau Maritime Festival Come celebrate all things maritime at the Peratrovich Plaza downtown at 11am on May 6! Juneau Geological Tour Walk around downtown to learn more about geology! Space is limited so be sure to secure tickets! Be there at City Museum May 13 at 1pm! Gustavus Talent Show Make the most of your 10 minutes to impress the crowd at the Community Center! 6pm on May 5. Gustavus Community Clean Up Contribute to the 10th annual Timmy Sunday Community Clean Up May 6 at 10am! Afterward, enjoy pizza and drinks at the Community Center! Skagway Cinco de Mayo Dance the night away on the dance floor at Skagway Brewing Company! 9:30 pm on May 5. Skagway Late Night Library Friday nights at 6pm, come to the library for a different activity each week! Crafts, games, and more for ages 10-18! Skagway Story Time Remember story time with Ms. Anna! It's perfect for kids up to age 3—a fun romp with songs, books, and more. Each Wednesday at the library, 10:30am. Haines Spring Fling Enjoy BBQ, music, carnival games, and more on the Fairgrounds! Join the fun on April 29 at 2pm. Haines Story Time Stories and songs for children and the young-at-heart! Every Monday and Friday in the library at 11:00 am. Haines First Friday Neighbors, galleries, museums, and artist exhibits. First Friday is May 5 starting at 5 pm! Haines Spring Wine Tasting Celebrate Cinco de Mayo with KHNS! Enjoy fine wine at the SE Alaska State Fairgrounds at 7 pm on May 5! Is there an event in our district I should know about? Please call or email! Want to Send Snail Mail? Alaska State Capitol Room 514 Juneau, AK 99801 You Can Call: 800 550 4947 907 465 4947 Or Email Me! ‌ ‌ ‌ Contact My Staff, the people who power the work: Aurora Hauke 907 465 5051 [email protected] Caleb Yabes 907 465 4947 [email protected] Ella Adkison 907 465 6419 [email protected] Cathy Schlingheyde 907 465 6827 [email protected] Senator Jesse Kiehl | Alaska State Capitol, Rm. 419, 4th Avenue & Main Street, Juneau, AK 99801 Unsubscribe [email protected] Constant Contact Data Notice Sent by [email protected]