Gov. Bill Walker had every right to cut Alaskans’ Permanent Fund Dividend in half, according to a state court judge.

The court has ruled in favor of the state in the PFD case filed by Sen. Bill Wielechowski, D-Anchorage, and former state Sens. Rick Halford and Clem Tillion.

Oral arguments were heard in Superior Court Third Judicial District in Anchorage on Thursday. Judge William Morse ruled immediately following the arguments.

The plaintiffs asked the court to order the state to transfer about $666 million from the Permanent Fund earnings reserve account to the Dividend Fund for a supplemental PFD check for all eligible Alaskans.

The lawsuit was in response to Gov. Bill Walker’s line item veto from earlier in the year, which cut the amount due to the Dividend Fund down to $695 million, reducing the PFD to $1,022 from just more than $2,000 per Alaskan.

Wielechowski served as co-counsel with Andrew Erickson on behalf of the plaintiffs. The main contention was the Permanent Fund is a dedicated fund with money dedicated in and dedicated out; otherwise it is just a bank account.

“Not necessarily,” Judge Morse interrupted. “Dedicated in, but not necessarily dedicated out.”

“If you don’t have money dedicated out, it’s essentially a bank account,” Wielechowski responded, stressing that it was not what the original framers intended. He noted the Legislature intended to have Permanent Fund income dedicated to the General Fund by default, and as provided by law.

“Do you think ‘otherwise provided by law’ plainly says appropriation by the governor is no longer necessary? Or the governor can no longer veto appropriation?” asked Judge Morse, one of many questions.

Wielechowski again defined what a dedicated fund is and how plain language applies to “as provided by law” to which the judge replied: “In terms of the plain meaning, you can’t seriously tell me that that has anything to do with the appropriation.”

The judge and attorney went back and forth on this matter.

Margaret Patton Walsh took the lead for the state, with co-counsel William Milks and Angela Rodell of the Alaska Permanent Fund Corp. seated at the defendant’s table.

The Constitution provides very clear rules on how it may spend money, rules which give both the governor and Legislature the maximum possible discretion over how to spend state money each and every year, said Patton Walsh. In addition, all spending must be authorized by appropriation.

A variety of state spending formulas, such as the one used to calculate the annual transfer of funds into the Dividend Fund, are essentially recommendations that guide the Legislature to appropriate funds on an annual basis. To suggest the Legislature amend those statutes every year in order to adjust its spending, instead of just reducing spending for that year, does not make any sense, she noted.

The judge asked why the need for formula statutes in the first place if they did not mean anything and were not honored.

“It can mean something without being an absolute command,” Patton Walsh replied, citing the example of a complicated calculation formula used for education spending. While the formula may determine what is needed in this area, it does not mean the Legislature is going to appropriate that exact amount.

Patton Walsh also argued that the Permanent Fund is not a dedicated fund where money is spent on a particular purpose, despite the plaintiffs’ claim. “Something that is provided by law is implicitly, explicitly even, in conformity with existing law, not in defiance of existing law.” The existing law in this case would be the governor’s authority to veto spending.

In addition, there is no automatic provision for an annual payment from the earnings reserve to the Dividend Fund. This transfer must be made by appropriation, not magic.

On a positive note, because the earnings reserve has not been treated like a general fund, she said, there is still $8.5 billion dollars still in that account, as opposed to zero dollars.

Judge Morse thanked both parties for their high quality, expedited briefs and succinct presentations. Both sides had strong arguments, to the point he thought each side could win. However, after giving it a lot of thought and reviewing precedents, he said, he ruled in favor of the state.

Alaska’s framers created a unique and rare situation which gives the governor more authority over spending than any other governor in the United States, he explained. The governor can’t choose to add spending, but he or she can reduce spending, and restrict the legislature’s ability to override that veto by requiring three fourths requirement (as opposed to two thirds.)

“That is an enormous dislocation of legislative power,” Judge Morse said, concluding that the Permanent Fund amendment is not intended to eliminate the governor’s role.

So the case is now headed to the Supreme Court.

“It’s obviously an extraordinarily important decision for the people of the state of Alaska and I am not the final arbiter on this one,” Judge Morse said.

While Wielechowski said that it not that unusual for Superior Court to expedite rulings, “Normally a case that goes to the Supreme Court takes several years.”

Patton Walsh was far more optimistic. “We asked the judge to rule by Dec. 2 and we thought that was a reasonable request, and he’s done way better than that in giving us a ruling so we can move it along quickly,” she said. “Everybody needs to know the answer to this question before session starts.”

Will the case move to the Supreme Court before January?

“I really hope so,” she said.

Stephanie Prokop can be reached at stephanie.prokop@alaskajournal.com.