JUNEAU, Alaska — Gov. Bill Walker's administration is looking at using the multibillion-dollar Alaska Permanent Fund to help spin off funds that could be put toward the state budget.
Details have not been finalized, but a Walker spokeswoman, Grace Jang, said Wednesday that the concept will serve as a major underpinning for Walker's budget plan. The administration presented the idea to legislators during a luncheon Wednesday.
The concept, as explained by Attorney General Craig Richards, would involve putting the state's petroleum production tax revenue into the Permanent Fund along with half of the state's resource royalties. Spun-off earnings, potentially around $3.3 billion a year, would go to the state general fund to help pay for government costs. Richards said the details are still "subject to some math," and running models.
One of the goals of this approach is to decouple the budget from the volatility of oil prices. It still wouldn't plug the anticipated budget hole, but it would help close the gap, he said.
Alaska has long relied heavily on oil revenues to pay for government operations. But the state is struggling with multibillion-dollar deficits exacerbated by low oil prices and using savings to help balance the budget. Declining production has also been a concern.
While oil in recent years provided about 90 percent of revenue available for spending, that figure had dropped to about 75 percent earlier this year.
Richards was part of an administration working group tasked with looking at ways to use Alaska's financial assets to help fill the budget hole and to better manage those assets. He told reporters that barring a change in the economic environment, Alaska's financial wealth assets will generate "substantially more income than petroleum revenues do in the future."
The value of the Permanent Fund, established in the 1970s as a nest egg of sorts seeded with money from Alaska's oil wealth, is estimated around $53 billion. The principal is constitutionally protected. It can't be spent and can only be used for income-producing investments. Earnings spun off from the fund currently are used for inflation-proofing the fund and paying annual dividends to most Alaskans. While earnings are available for use for the state budget, legislators have been loath to go there.
The value of the earnings reserve account is about $7 billion, Richards said. The account would have to be large enough so it could sustainably produce $3.3 billion regardless of the flow from the Permanent Fund; based on economic models, the earnings account would have to be between $10 billion and $13 billion, Richards said. To get there, a fund transfer from another savings account, the constitutional budget reserve fund, would be needed.
The total value of assets for which the state has some flexibility in their use, including the budget reserve fund and a few other pots of money, is about $60 billion, Richards said. The state has begun tapping the constitutional budget reserve to balance the budget.
As part of the concept being discussed by the administration, dividends would be funded with the remaining half of resource royalties, a change from the current formulation in which the dividend is based on a five-year average of the Permanent Fund's investment earnings.
Richards said it appears the administration is heading toward rethinking the approach to the dividend and paying it based on the success of natural resource development in the state, not on the success of the state's financial assets. That would mean a dividend for next year of about $1,000, if this were enacted, he said.
The dividend check this year was $2,072, but it has been as low as $845 over the last decade.
Senate Finance Committee co-chair Sen. Pete Kelly, R-Fairbanks, said he thinks there's a lot of agreement about establishing some sort of revenue plan for the Permanent Fund that protects dividends and supplies money for the general fund.
"I think ultimately we establish something that looks like that," he said of the concept presented by Richards. But Kelly said continued budget cuts are imperative.
Committee co-chair Sen. Anna MacKinnon, R-Eagle River, said the concept is worth exploring, and she hopes people will keep an open mind.
Sen. Bill Wielechowski, D-Anchorage, who has proposed putting the current dividend formula into the constitution, said he's concerned with the direction the administration is heading. He said he represents a working-class district and for many of his constituents, the dividend is important. While acknowledging the need to address the deficit, he said other areas should be looked at, such as tax credits and the state's oil tax structure.