The Permanent Fund Protection Act Senate District S Legislative Update

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by Senator Lyman Hoffman

Family, friends and neighbors –

This last Wednesday, March 15, 2017, the Senate approved passage of SB 26: Perm. Fund: Deposits; Dividends; Earnings, aka the Permanent Fund Protection Act. I voted in favor of this legislation and I will explain why.

Basically, it comes down to two things; first and foremost, protecting the dividend is a priority; and secondly, the budget numbers speak for themselves.

How does SB 26 protect the Permanent Fund Dividend?

SB 26 establishes a plan to use a sustainable draw of the Permanent Fund Earnings Reserve Account (ERA). The ERA is established as a separate account from the main fund, the principal. Income/earnings from the fund is deposited into the account. The ERA funds the annual Permanent Fund Dividends. SB 26 caps the annual dividend to $1,000 for years 2018, 2019, and 2020. Following the 3-year cap, SB 26 allows for modest dividend growth.

Under today’s current structure, all of the money in the ERA is available for appropriation by the Legislature. In addition, the Fund’s unrealized gains are available for appropriation/withdrawal if these assets are sold. There are years when this has left more than 20 percent of the Fund unprotected.

SB 26 establishes a “percent of market value,” (POMV) that creates a new appropriation/withdrawal limit for the Permanent Fund. POMV limits yearly withdrawals from the Fund to no more than 5 and one-quarter percent of the Fund’s market value, averaged over five years.

In FY21, the draw reduces to 5 percent. This would leave 95 percent of the Fund protected from spending. POMV protects the dividend for future generations and that’s my priority!

During the last few years, the state has been operating its’ budgets in the red, meaning, we spend more money than we receive in revenue. We were able to do this due to the “Savings Spree” accomplished by the former Senate Bipartisan Coalition (2006-2012), of which I was a member.

As of the end of February 2017, the Constitutional Budget Reserve (CBR) account has a balance of $4.7 billion. The estimated revenue for FY 18 is $5.2 billion. The draw needed from savings for the FY18 budget is $3.2 billion, which would leave a balance of $1.5 billion in the CBR.

The bottom line is, if we don’t implement a fiscal plan this year, our savings account will be depleted within a year and a half.

As I said on the Senate floor during debate on this bill, Inaction is not an option. We need to take the next step to address the fiscal cliff that the State of Alaska is facing today.

SB 26 addresses one component of the Senate Majority’s fiscal solution. This week, the Senate Finance Committee continues their work on another element, reducing government spending in the FY18 Operating budget. But, it should be noted that we simply cannot cut our way out of this situation.

Apply For your 2017 PFD. Deadline: March 31, 2017. http://pfd.alaska.gov/

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