State Capitol, Room 13
Juneau, AK 99801-1182
Phone: (907) 465-2689
Fax: (907) 465-3472
345 W. Sterling Hwy. Suite 102B
Homer, AK 99603
Phone: (907) 235-2921
Fax: (907) 235-4008
An Act relating to disposition of income of the Alaska permanent fund; and providing for an effective date.
January 18, 2002
Representative Drew Scalzi's office at (907) 465-2689
House Bill 398 is much more than simply a mechanism to maintain an adequate balance in the Constitutional Budget Reserve Fund for public services. This legislation would:
- Restore the Budget Reserve Fund at the start of each fiscal year to $1.5 billion, a reasonable amount to preserve public services while providing a cushion against any one-year risk in low oil prices. HB 398 would use Permanent Fund earnings to "refill" the Budget Reserve Fund each year, while still providing for a healthy dividend for Alaskans.
- By essentially setting a $1.5 billion cap on the Budget Reserve, HB 398 would ensure that state government does not accumulate any more money than it needs. The public - not a government savings account - should benefit from any surplus revenues.
- HB 398 would serve as an incentive to the legislature, the governor and the public to adopt new revenue sources to help close the budget gap to preserve the dividend for many years to come.
- And HB 398 would encourage responsible state spending by linking state spending with the annual dividend.
HB 398 would link the amount of each year's dividend to the price of oil and to state spending, which would make the dividend more relevant to Alaska's economic situation than the existing program that links the dividend only to the Permanent Fund's Wall Street investments. The legislation would:
- Use the existing statutory formula to determine the amount of Permanent Fund earnings available for distribution each year. There would be no change in the current formula that averages the fund's earnings over the past five years.
- Use the existing statutory formula to inflation-proof the fund's principal. Before any money is distributed for any purpose, sufficient funds would be moved from the Earnings Reserve Account to the principal to cover inflation over the past year.
- Then, the Budget Reserve Fund trigger would kick in. In any year that the CBRF is below $1.5 billion on June 30 (the last day of the fiscal year), this legislation would direct that an amount sufficient to restore the CBRF to $1.5 billion be taken from the funds available for distribution.
- Whatever is left in the funds for distribution after the CBRF is refilled would then be handed out in dividends.
- If, after a broad-based tax and other revenue measures were adopted to raise a total of $600 million a year, and if the remaining budget gap were then $500 million, then $500 million would be taken from Permanent Fund earnings to refill the CBRF.
- And, if $1.1 billion in Permanent Fund earnings were available for distribution under the 5-year, income-averaging formula, there would be $600 million left for dividends after $500 million was used to refill the CBRF. That would equal a dividend of about $1,000 per Alaskan.
- If oil prices are high, the budget gap would be smaller and the draw on Permanent Fund earnings would be smaller - and the dividends would be larger.
- If oil prices are low and the budget gap wider, the draw on earnings would be higher and the dividends would be smaller.
If additional revenues come in from a broad-based tax or development of NPRA or ANWR or a natural gas pipeline, the budget gap would be smaller - and the dividend would be larger. This way, Alaskans would more directly benefit from economic development within our state.
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