From Sen. Chris Birch <[email protected]>
Subject Budget Vetoes and PFD - Sen. Chris Birch - July 2019 Newsletter
Date July 25, 2019 7:08 PM
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Thank you for your request to be added to our e-newsletter distribution list. I have now added you to our distribution list and below is a copy of my most recent (July 17th) e-newsletter.

Thanks, Chris

Senator Chris Birch, P.E.
South Anchorage - District M
Session - State Capitol, Room 125
Interim - Anchorage LIO, 1500 W Benson
[email protected]<mailto:[email protected]>
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July 2019

Second Special Session Update


The second special session of the legislature convened on Monday, July 8th. I arrived in Juneau with many of my colleagues to work out an agreement on the Permanent Fund Dividend and to address the Governor's vetoes to the operating and capital budgets.

Thank you to the many Alaskans that have been emailing me with your comments and concerns about the impact of the Governor's vetoes and Permanent Fund Dividend. I am reading and responding to each of you and appreciate your engagement in the legislative process.

Please continue to email me<[link removed]> or call my office at (907) 269-0205 if I can answer any questions or concerns.

Thank you,

[[link removed]]

Governor's Budget Vetoes

Back in June, the legislature advanced a responsible budget that incorporated modest reductions to spending (about $200 million), funded critical and constitutionally defined services, moved over $10 billion in the permanent fund earnings reserve to the protected corpus and had a $600 million surplus available for dividends or savings. The Governor's vetoes were not necessary given the budget surplus and reductions already achieved through the legislative budget hearing process.

During the joint House/Senate session on July 10th, I and many of my colleagues voted in favor of a veto override. (In my remarks during debate I expressed strong disappointment that 6 of the 20 senators who voted for the budget just weeks ago weren’t in Juneau to explain why they now supported the governor gutting portions of that budget.) Unfortunately, we were only able to get 37 of the 45 votes needed and the override failed.

Although the veto override failed, there is still time left in the special session to find compromise. In the meantime, I will continue to work with my colleagues in the Legislature and with the Governor to find a way forward and a solution that’s best for Alaskans.

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Permanent Fund Dividend

I’ve been getting a lot of feedback—both kudos and criticisms—on my recent proposals for a reasonably-sized Permanent Fund Dividend, one the state can afford and that gets us to a balanced budget. This is great and I’m heartened to see Alaskans so engaged on the issue! But I wanted to take a moment to clear the air on one misconception I feel bears a response.

A lot of people are calling any move by the Legislature that results in a PFD less than the full statutory amount (about $3,000 this year) “unlawful” and even “criminal.” However, this contention ignores a greater law relating to the Legislature’s ability to set the dividend amount: the Alaska Constitution.

In 2017, in Wielechowski v. State of Alaska, the court ruled unanimously that the Legislature’s use of Permanent Fund earnings is subject to the appropriation processes laid out in the State Constitution. This means that state statute relating to the amount of the PFD is superseded by the Legislature’s constitutionally granted appropriation authority. In short, although it makes for a nice soundbite to say legislators are breaking the law if they provide anything less than a full statutory dividend, the fact is the State Constitution says otherwise.

Additionally, a law prohibiting overspending of Permanent Fund earnings was put into place last year when a POMV—or percent-of-market-value—model was adopted for managing the Permanent Fund. This move set the Permanent Fund up as an endowment that generates a perpetual and sustainable revenue stream that flows into the state’s general fund, where it can be spent for any public purpose by a simple majority vote of the Legislature.

The amount of that revenue stream was limited to roughly 5% of the total value of the Permanent Fund annually. However, paying a $3,000 dividend this year would require an over 8% draw, which is $1.3 billion more than what the Legislature can “legally” pull from the Permanent Fund earnings.

Spending beyond the POMV draw also puts us on a path toward blowing through the approximately $14-billion Permanent Fund earnings the same way we decimated the state’s primary savings account in just a few short years. That account was depleted from over $16 billion in 2013 to just over $2 billion in 2018. If we spend through the Permanent Fund earnings like we did the state saving’s account, we won’t be able to pay any dividend at all.

So which law does the Legislature follow, a nearly 40-year old statutory formula that ignores the state’s fiscal situation or a law passed just last year that’s modeled after the way successful sovereign wealth funds are managed throughout the world and intended to protect the long-term sustainability of the Permanent Fund? Although the State Constitution makes the question moot, to me it makes a lot more sense to abide by the sustainable POMV draw rather than trade the security of the Permanent Fund over the long term for a big dividend this year.

I recently proposed a $900 dividend because that’s the PFD the state can afford, even after cutting the budget to the lowest level in fifteen years<[link removed]>. Any dividend over $900 would entail dipping too deeply into Permanent Fund earnings and threatening the long-term sustainability of the Permanent Fund itself. (I previously pushed for a $1,200 dividend<[link removed]>, but the cost of a few key priorities recently agreed to by the House and the Senate—including criminal justice reform, repairing earthquake damage, and a small capital budget to fix roads and other needed infrastructure—reduced the dividend that could be paid while still balancing the budget to a more modest $900.)

As the debate continues, I’ll continue to push for a reasonable, responsible, and conservative approach to the dividend and the future of the Permanent Fund itself. For me it comes down to one simple question: what type of state do we want to live in? One where we pay out a supersized dividend this year at the expense of future generations of Alaskans? Or one where we provide Alaskans with critical, constitutionally required public services like education, public safety, and infrastructure while paying a reasonably-sized dividend for generations to come?

Capital Budget and Reverse Sweep

The Governor has not yet added the capital budget or the reverse sweep to the special session call - this could have devastating adverse impacts to our state including the loss of nearly a billion dollars in Federal construction funding.

However, on Monday, July 15th, the House Finance Committee introduced a committee substitute for HB 2001<[link removed]> that includes a $929 Permanent Fund Dividend, the items vetoed by the Governor, the capital budget, and the reverse sweep. The sweep is an automatic transfer of money from dozens of state bank accounts—including the higher education fund, state fund for preventing and responding to oil spills, and debt retirement fund, into one big savings account (Constitutional Budget Reserve) that happens at the end of each fiscal year. The legislature must vote annually to reverse the sweep so the money is restored to those accounts. (The reverse sweep did not happen this year because it was included in the capital budget which failed to pass before the end of the fiscal year.)

One item of significant consequence is that funding for the crime reform bill (HB 49<[link removed]>) is directly tied to one of the accounts that was swept. Therefore, the crime bill goes largely unfunded until this issue is fixed.

This bill is in line with a dividend I can support, and restores the operating and capital budgets to levels I supported at the end of the first special session.

Senator Chris Birch, District M<[link removed]> | 907-269-0205 | [email protected]<mailto:[email protected]> | Website<[link removed]>


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Senator Chris Birch - Alaska State Legislature | State Capitol, Room 125, Juneau, AK 99801
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