If there\u2019s one thing Alaska\u2019s lawmakers agree on, it\u2019s this: No single trick or approach will solve the state\u2019s annual deficit, now approaching $4 billion.<\/p>\n
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\u2019t agree on – not by a long shot – is how to use those earnings.<\/p>\n
On Thursday morning, the Alaska Senate State Affairs Committee began considering three approaches that put the Permanent Fund to work generating revenue for Alaska\u2019s state government. One approach comes from an Anchorage legislator. Another comes from the governor. A third comes from one of the state\u2019s leading economists.<\/p>\n
\u201cThis is the tool that we should make sure to put in place first,\u201d said University of Alaska Anchorage economist Scott Goldsmith of all three plans, \u201cbecause it provides the biggest part of the solution in terms of dollar amounts.\u201d<\/p>\n
In terms of impact on the state economy, using Permanent Fund earnings doesn\u2019t have the negative implications of a tax on businesses or residents, and it\u2019s something that can be done quickly.<\/p>\n
\u201cIt\u2019s the easiest to put in place,\u201d he said.<\/p>\n
All three proposals work similarly but differ in detail. All three involve preserving the Permanent Fund\u2019s principal, the $48 billion investment account, and instead spending a fraction of the fund\u2019s earnings reserve, an account that contains the money earned when the fund\u2019s 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\u2019s oil revenue into the Permanent Fund. The fund invests that money, thus generating more money for the earnings reserve.<\/p>\n
\u201cNone of these proposals produces money out of a hat,\u201d Goldsmith said. \u201cAll of the proposals start out with the same asset base and the same revenue base.\u201d<\/p>\n
Goldsmith\u2019s proposal, which has become known as the \u201cGoldsmith Plan,\u201d calls for diverting all of the state\u2019s 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.<\/p>\n
Senate Bill 114, proposed by Sen. Lesil McGuire, R-Anchorage, proposes taking 5 percent of the Permanent Fund\u2019s value out of the earnings reserve every year. Dividends would be paid with three-quarters of all the state\u2019s 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.<\/p>\n
Senate Bill 128, proposed by the governor, would sweep several of the state\u2019s savings accounts, such as the Constitutional Budget Reserve, into the earnings reserve, supercharging it. Twenty-five percent of the state\u2019s oil and gas royalties would go into the Permanent Fund, while 75 percent of those royalties and all of the state\u2019s oil production taxes would go into the earnings reserve. The reserve would pay a dividend equivalent to half the previous year\u2019s oil royalties. State government would be able to take a steady $3.3 billion per year for operations.<\/p>\n
McGuire\u2019s plan will receive its full debut and first discussion on Tuesday. The governor\u2019s proposal will have its turn on Thursday.<\/p>\n
This week was the Goldsmith plan\u2019s 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.<\/p>\n
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.<\/p>\n
\u201cWe need to consider under all of these government proposals \u2026 what the effect is on the private economy,\u201d he said.<\/p>\n","protected":false},"excerpt":{"rendered":"
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