For lawmakers, 3 options to tap permanent fund earnings

If there’s one thing Alaska’s lawmakers agree on, it’s this: No single trick or approach will solve the state’s annual deficit, now approaching $4 billion.

Most of the 60 legislators working in the Capitol agree on something else. No single trick or approach will do as much to solve the deficit as using the investment earnings of the $48 billion Alaska Permanent Fund. What they don’t agree on — not by a long shot — is how to use those earnings.

On Thursday morning, the Alaska Senate State Affairs Committee began considering three approaches that put the Permanent Fund to work generating revenue for Alaska’s state government. One approach comes from an Anchorage legislator. Another comes from the governor. A third comes from one of the state’s leading economists.

“This is the tool that we should make sure to put in place first,” said University of Alaska Anchorage economist Scott Goldsmith of all three plans, “because it provides the biggest part of the solution in terms of dollar amounts.”

In terms of impact on the state economy, using Permanent Fund earnings doesn’t have the negative implications of a tax on businesses or residents, and it’s something that can be done quickly.

“It’s the easiest to put in place,” he said.

All three proposals work similarly but differ in detail. All three involve preserving the Permanent Fund’s principal, the $48 billion investment account, and instead spending a fraction of the fund’s earnings reserve, an account that contains the money earned when the fund’s principal is invested in global markets. To compensate for spending from the earnings reserve, all three plans also channel some or all of the state’s oil revenue into the Permanent Fund. The fund invests that money, thus generating more money for the earnings reserve.

“None of these proposals produces money out of a hat,” Goldsmith said. “All of the proposals start out with the same asset base and the same revenue base.”

Goldsmith’s proposal, which has become known as the “Goldsmith Plan,” calls for diverting all of the state’s petroleum revenue into the Permanent Fund directly. The state would draw off $3.55 billion per year to pay for dividends and annual government expenses.

Senate Bill 114, proposed by Sen. Lesil McGuire, R-Anchorage, proposes taking 5 percent of the Permanent Fund’s value out of the earnings reserve every year. Dividends would be paid with three-quarters of all the state’s oil revenue. The other quarter of oil revenue would go to pay for state government. That would generate about $3.7 billion per year for the state.

Senate Bill 128, proposed by the governor, would sweep several of the state’s savings accounts, such as the Constitutional Budget Reserve, into the earnings reserve, supercharging it. Twenty-five percent of the state’s oil and gas royalties would go into the Permanent Fund, while 75 percent of those royalties and all of the state’s oil production taxes would go into the earnings reserve. The reserve would pay a dividend equivalent to half the previous year’s oil royalties. State government would be able to take a steady $3.3 billion per year for operations.

McGuire’s plan will receive its full debut and first discussion on Tuesday. The governor’s proposal will have its turn on Thursday.

This week was the Goldsmith plan’s debut. Legislators had few questions as the economist presented the proposal by phone, saying it offers the best chance for a sustainable draw without reducing state assets in the long term.

Goldsmith was followed by consultant Brad Kiethley, who offered his support for the Goldsmith plan, saying the other two proposals effectively cut the Permanent Fund Dividend and are a de facto tax on Alaskans.

“We need to consider under all of these government proposals … what the effect is on the private economy,” he said.

More in News

Copies of the Peninsula Clarion are photographed on Friday, June 21, 2024. (Photo by Erin Thompson/Peninsula Clarion)
Announcing a new Peninsula Clarion print schedule

Our last Wednesday edition will be delivered June 26.

A bucket of recently caught sockeye salmon rests on the sand while anglers seek to fill it further at the mouth of the Kasilof River on Monday, June 26, 2023, in Kasilof, Alaska. (Jake Dye/Peninsula Clarion)
Dipnetting in Kasilof opens Tuesday

Dipnetting will be allowed at all times until Aug. 7

The Kasilof River is seen from the Kasilof River Recreation Area, July 30, 2019, in Kasilof, Alaska. (Photo by Erin Thompson/Peninsula Clarion)
Fish and Game restricts bait on Kasilof, Ninilchik Rivers

The use of bait on the rivers will begin Friday and extend to July 15 in Ninilchik, July 31 in Kasilof

A man fishes in the Kenai River on July 16, 2018, in Soldotna, Alaska. (Peninsula Clarion/file)
Slow sockeye fishing on Kenai, Russian Rivers

Northern Kenai Fishing Report for June 20

Alaska Department of Fish and Game logo. (Graphic by Jake Dye/Peninsula Clarion)
Bag limits doubled for sockeye salmon in Resurrection Bay

The increase is effective from June 21 to July 31

Jake Dye/Peninsula Clarion
Girl Scout Troop 210, which includes Caitlyn Eskelin, Emma Hindman, Kadie Newkirk and Lyberty Stockman, present their “Bucket Trees” to a panel of judges in the 34th Annual Caring for the Kenai Competition at Kenai Central High School on Thursday, April 18.
Caring for the Kenai winners receive EPA award

Winning team of the 34th annual Caring for the Kenai was selected for the President’s Environmental Youth Award

Norm Blakely speaks to the Kenai Peninsula Borough Assembly in Soldotna, Alaska, on Tuesday, June 18, 2024. (Jake Dye/Peninsula Clarion)
Assembly approves resolution guiding efforts to increase voter turnout

The Voter Turnout Working Group was established to explore options and ideas aimed at increasing voter participation

Most Read