Per­ma­nent Fund Fate a Top Is­sue in Alaska Race

The Bond Buyer - - Front Page - BY IM­RAN GHORI

An an­nual div­i­dend pay­ment to Alaska res­i­dents is a ma­jor is­sue in this year’s race for gov­er­nor.

Gov. Bill Walker, an in­de­pen­dent, is fac­ing chal­lenges from Demo­crat Mark Begich, a for­mer U.S. Sen­a­tor and mayor of An­chor­age, and Repub­li­can Mike Dun­leavy, a for­mer state sen­a­tor. Both ma­jor-party can­di­dates have crit­i­cized Walker’s changes to the Alaska Per­ma­nent Fund.

In 2016, Walker cut the amount dis­bursed to res­i­dents through the fund – an in­vest­ment fund seeded with state oil and gas tax rev­enues – as part of his plan to re­duce the state’s

multi-bil­lion bud­get deficit.

The fund’s prin­ci­pal is in­vi­o­lable per the state con­sti­tu­tion. Rev­enue from its earn­ings since 1982 have been used to send an an­nual div­i­dend check to Alaska res­i­dents -- free money that var­ied from year to year, top­ping out at $2,072 per man, woman and child in 2015. Alaskans pay no state in­come or sales tax.

In June, Walker signed a bill that lets the state gov­ern­ment draw an­nu­ally from the Per­ma­nent Fund to cover op­er­at­ing ex­penses while pro­vid­ing res­i­dents with a $1,600 an­nual div­i­dend. The 2017 div­i­dend was $1,100.

Walker has de­scribed the changes as nec­es­sary to pro­tect the fund in the long term while get­ting the state’s bud­get, which has faced multi-bil­lion dol­lar deficits over the last four years, un­der con­trol.

“I re­duced the PFD in 2017 so that the Leg­is­la­ture would find the courage to pass a fis­cal plan com­pro­mise,” Walker said in a July op-ed in the An­chor­age Daily News de­fend­ing his de­ci­sion. “That com­pro­mise has pro­vided the sta­bil­ity that busi­nesses need to in­vest in Alaska.”

Begich is propos­ing a con­sti­tu­tional amend­ment to pro­tect the Per­ma­nent Fund say­ing it shouldn’t be “sub­ject to the whims of elected of­fi­cials – to­day or in the fu­ture.”

Begich’s plan, out­lined on his cam­paign web­site, would es­tab­lish a for­mula where res­i­dents would get a $1,600 to $1,800 an­nual div­i­dend while also pro­vid­ing a per­cent­age to ed­u­ca­tion.

“I be­lieve my plan is the only plan that guar­an­tees a sus­tain­able PFD while also pro­tect­ing the fund and its fu­ture from politi­cians down the line,” he said.

Dun­leavy has called Walker’s ac­tion a breach of the pub­lic trust and said he would re­store the div­i­dend to the full amount be­fore the cut.

“It was never bro­ken, and does not need to be ‘fixed,’” he said in a state­ment on his cam­paign web­site.

Alaska po­lit­i­cal an­a­lyst Jerry McBeath, a pro­fes­sor emer­i­tus of po­lit­i­cal science at the Univer­sity of Alaska, Fair­banks, said the Per­ma­nent Fund de­ci­sion was con­tro­ver­sial and it’s not a sur­prise it’s be­come an is­sue in the gov­er­nor’s race.

“It was an un­pop­u­lar move be­cause most Alaskans be­lieve they are en­ti­tled to a Per­ma­nent Fund div­i­dend,” he said. “They have an en­ti­tle­ment philosophy. When the en­ti­tle­ment is re­duced, they hold re­spon­si­ble any­body who has re­duced it.”

Walker has de­scribed him­self as will­ing to make hard choices on fis­cal mat­ters. His state bud­gets – which have in­cluded deep cuts to the state’s uni­ver­si­ties – have re­duced Alaska’s deficit from $3.7 bil­lion to $700 mil­lion, ac­cord­ing to the gov­er­nor.

Ear­lier this year, S&P Global Rat­ings moved its out­look on Alaska’s AA rat­ing to sta­ble from neg­a­tive fol­low­ing the bud­get’s pas­sage.

It was the first pos­i­tive news from a ma­jor credit agency since all three down­graded the state in 2015 due to fall­ing oil prices and bud­get deficits. Fitch Rat­ings as­signs Alaska its AA rat­ing, and Moody’s In­vestors Ser­vice rates the state Aa3.

The rat­ings were triple-A across the board un­til 2015.

Walker called the S&P ac­tion a sign that “Alaska’s econ­omy has turned a cor­ner.”

Begich has said he be­lieves the state can re­duces ex­penses by mod­ern­iz­ing and be­com­ing more ef­fi­cient. His plan in­cludes mov­ing from a one-year to two-year bud­get cy­cle and us­ing more bond fi­nanc­ing to pay in­fra­struc­ture projects in­stead of cash.

Dun­leavy has called for even more cuts, say­ing the state spends more per capita than any other state in the nation.

For­rest Nabors, a pro­fes­sor and chair of the po­lit­i­cal science de­part­ment at Univer­sity of Alaska, An­chor­age, said of the three can­di­dates Walker has fo­cused the most on the state’s bud­get dif­fi­cul­ties but it’s not an is­sue that has been as im­por­tant to the elec­torate.

”In my view, the gov­er­nor de­serves credit for hav­ing the guts to try some­thing dif­fer­ent be­cause he knows we need to change the ba­sis of our state fi­nances,” Nabors said.

One of the most press­ing is­sues for vot­ers in the cam­paign is the up­swing in crime in the state although he doesn’t see ma­jor dif­fer­ences be­tween the three can­di­dates who all say they will do more to pro­vide ad­di­tional re­sources.

All three can­di­dates also sup­port fur­ther oil ex­plo­ration in the state while Begich has staked out a po­si­tion in sup­port of a state bal­lot mea­sure backed by fish­ers that would pro­vide pro­tec­tion to salmon habi­tat.

The Cook Po­lit­i­cal re­port de­scribes the race as a toss-up but both Nabors and McBeath be­lieve Dun­leavy is fa­vored due to the state’s po­lit­i­cal makeup.

Alaska has an elec­torate with 54% non­par­ti­san reg­is­tered vot­ers, 27% Repub­li­cans and 15% Democrats. The state has gen­er­ally voted Repub­li­can for ma­jor of­fice-hold­ers except in years where the party was frac­tured, McBeath said.

This year, Dun­leavy ap­pears to have uni­fied Repub­li­can sup­port while Walker and Begich will fight for Democrats and in­de­pen­dents, both ex­perts say.

“I be­lieve it’s Dun­leavy’s race to lose,” Nabors said. “Begich is go­ing to split votes. He’s not go­ing to soak up all the Democrats who are go­ing to sup­port Walker and, more im­por­tantly, in­de­pen­dents.”

Walker is a for­mer Repub­li­can who ran with Demo­cratic sup­port in 2014 and whose run­ning mate for lieu­tenant gov­er­nor is a Demo­crat. But his abil­ity to hold the coali­tion of in­de­pen­dents and Democrats who sup­ported him last time is “in se­ri­ous trou­ble” as his ap­proval rat­ings have fallen to the mid20% to 30% range, Nabors said.

Some Democrats called for Begich to drop out of the race but he put an end to that spec­u­la­tion ear­lier this month declar­ing “I’m in the race to win” on the fi­nal day where he could re­move his name from the bal­lot.

Nabors be­lieves Begich or Walker can only win if one of them drops out. But with Walker’s poll numbers, Begich be­lieves he has a bet­ter shot while Walker as an in­cum­bent is not likely to pull out, he said.

“If you’re a Demo­crat this should frus­trate you to no end,” Nabors said. “They should draw straws.”

McBeath said Walker and Begich both have an ad­van­tage in name recog­ni­tion over Dun­leavy, whose Alaska ties don’t run as deep.

Dun­leavy could also see some back­lash over an in­de­pen­dent po­lit­i­cal ac­tion com­mit­tee his brother has con­trib­uted heav­ily to that has spent over a half-mil­lion dol­lars, McBeath said.

Walker or Begich may still have a chance to change the dy­nam­ics, he said.

“Alaska is a state with close elec­tions,” he said. “One ma­jor fac­tor one can’t for­get is how much mo­men­tum de­vel­ops in the cam­paign for each can­di­date.” ◽

David Liene­mann/Of­fice of the Gov­er­nor

Alaska Gov. Bill Walker, an in­de­pen­dent, is run­ning for re-elec­tion against Repub­li­can and Demo­cratic can­di­dates.

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