With budget at stake, governor contemplates veto of PFD checks

Now that Alaska Gov. Bill Walker has the state budget on his desk, he has the power to veto or reduce appropriations, including the Alaska Permanent Fund Dividend. That could mean no October dividend check for Alaska residents, or a reduced one.

In a press conference on Sunday, Walker showed frustration with the House for not showing “leadership and momentum and statesmanship” as the Senate did in passing the Permanent Fund restructuring bill that would’ve meant a smaller dividend payout but a reduction in the state’s deficit.

“Those that are concerned about receiving a lesser dividend this year … that is a step to make sure we have a dividend going out generations,” Walker said.

During an earlier press conference last week, he asked naysayers of Senate Bill 128 to envision “what it’ll be like to have no check.”

The bill called for a 5.25 percent annual draw from the Alaska Permanent Fund to pay for the dividend and provide money for state services. That would mean cutting the dividend to as low as $1,000. Without SB 128, the dividend is expected to be about $2,000 this fall.

Walker recognized the restructuring doesn’t fix the whole deficit problem.

Last week, Revenue Commissioner Randall Hoffbeck said the state would still have up to a $1.5 billion deficit next year. But that wouldn’t mean continuing to take from the Permanent Fund.

“As far as squeezing any more out of the Permanent Fund earnings, the formula put in place is essentially the maximum draw we could make from the Permanent Fund earnings and expect to protect the corpus of the funds,” he said. “We won’t be going back to the Permanent Fund for more money. We will be looking at more traditional measures, revenues and reductions in spending.”

After the Legislature adjourned Sunday morning failing to pass measures that would balance the state budget without deep draws from the state’s savings accounts, Walker called the Legislature back to another special session starting July 11. The number one issue is the Permanent Fund.

In the meantime, the governor said the budget is his vehicle to cause change.

“When the budget comes to me and I address the financial situation of Alaska through the budget … it will get some Alaskans’ attention in that process. I am in a situation that things I anticipated would be done legislatively have not been. Therefore, I have the opportunity — I have the obligation — to do some things as governor with the budget,” Walker said at the Sunday press conference.

When asked directly by members of the press if he would veto the whole $1.4 billion Permanent Fund appropriation or a portion of it, Walker didn’t rule it out.

“We’ll look at every item individually and decide between now and July 1 what items get vetoed and what does not,” he said Sunday. “At this point, all options are on the table.”

“Given the financial situation we’re facing, I think it’s a real possibility that a portion of the Permanent Fund money will be vetoed,” Juneau Republican Rep. Cathy Muñoz said on the phone Monday.

“If all of the dividend money were vetoed, then I believe that would force the Legislature to then deal with either an override of that veto or, more importantly, the long-range fiscal plan and the inclusion of the Permanent Fund endowment piece,” she said, referring to SB 128.

The Legislature has the ability to meet in joint session and, with three-quarters of the members voting to do so, override a veto.

Muñoz sits on the House Finance Committee, which is where the Permanent Fund restructuring bill died last week in a 5-6 vote. Members of the committee said they were listening to their constituents’ opposition by voting against the bill.

Muñoz was one of the yes votes.

“My constituents by and large recognize the situation we’re in and recognize we need to put in place a sustainable budget going forward, a plan for the future. I have gotten very little opposition to changes to the Permanent Fund recognizing that changes now will protect the viability of the Permanent Fund in the long run,” she said.

Dennis Egan said he hasn’t heard of another Alaska governor even thinking about vetoing a Permanent Fund appropriation since the dividend program was created in 1982. But the Juneau Democratic Senator agrees with the urgency Walker has put on restructuring the Permanent Fund.

“I don’t think that everybody understands that if we don’t do something that we’re going to lose it all,” Egan said. “The free ride is over, and I understand that if we lower the PFD on folks, that it’s going to hurt municipalities. It’ll hurt folks, especially in rural Alaska. But we have to do something, because if we don’t, we won’t have a PFD.”

Egan said he was disappointed when the House Finance Committee didn’t pass SB 128. He blamed the outcome on it being an election year. Egan is not running for reelection.

“I’m trying to look out for the state. I’m not trying to look out for running for reelection. But there are a lot of folks out there, they’re under the impression that they’ll lose if they support the bill,” Egan said.

He said he has no idea what Walker will do with the Permanent Fund dividend appropriation, but Egan hopes the governor does veto the oil and gas subsidies bill.

House Bill 247 contains cuts to the state’s subsidy system but preserves a significant loophole that leads to an explosion in the state’s subsidy payments at low oil prices.

Juneau Democratic Rep. Sam Kito III sees the Permanent Fund restructure, HB 247 and another issue as being intertwined.

“Before we cut dividends to individuals, I think we need to be looking at an income tax because that broad base tax does the most for the state of Alaska, costs less than a sales tax and it’s the second largest piece of the governor’s plan as far as addressing the component of paying for state government,” Kito said.

Considering a suite of tax increases, including establishing a personal income tax, is on the governor’s agenda for the special session in July. Tax increases had gained no traction in the House.

“We have to have a real discussion about an income tax as opposed to just having a hearing and putting it aside,” Kito said. “We’re going to have to address it at some point — why not address it now?”

While some in the state may be upset with the governor threatening to mess with Permanent Fund dividend checks, Kito doesn’t think it’s outside reasonable bounds or grounds for a potential lawsuit.

“The Legislature has the ability to appropriate, and the governor has the ability to line-item veto on the budget,” he said. “As a budgeting item, I don’t see it rising to the level of taking him out of the office or challenging him in some way.”

At the Sunday press conference, Walker admitted cutting the dividend is an unpopular move.

“Of course it’s politically uncomfortable. When I stepped on that field and introduced the legislation, it was pretty lonely. I was pretty happy to see the Senate join me on (SB) 128. I look forward to the House doing the same, and we can move on to the next phase.”

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