May 28, 2015
As you are aware, Alaska is facing tough financial times. The price of oil has dropped nearly fifty percent from this time last year – posing a dramatic decrease in revenue and creating the largest deficit we have seen in our young state’s history.
Some may call this a crisis, but the only crisis that we see is a small group of House Minority Democrats who want to grow the budget considerably in order to access Alaska’s Constitutional Budget Reserve.
We will not stand for this. That is why we, the Senate and the House Majorities, have put together a plan that will fully fund the budget for Fiscal Year 2016 without further depleting our reserve accounts and increasing government spending, in the event the House Minority Democrats decide not to support a three-quarter vote to access the CBR.
In the simplest terms possible, we have decided to deposit $4.9 billion from the Permanent Fund Earnings Reserve Account (ERA) to the principal of the Permanent Fund. This transfer would have occurred in the future, we are just doing it early to inflation proof the Permanent Fund it for the next five years. This will protect the Permanent Fund.
The ERA is where the money from interest and other earnings from the investment of the principal of the Permanent Fund is deposited. The ERA can be viewed like a checking account. It is used to pay out dividends and inflation-proof the Permanent Fund. The principal of the Permanent Fund, as most Alaskans know, cannot be spent unless there is a vote by the people. We are not proposing to spend the Permanent Fund. We are proposing to inflation proof the Permanent Fund and to save for future generations.
The first question that enters everyone’s mind is: What will this do to my dividend? The answer is nothing. This deposit will not impact the dividend that each eligible Alaskan receives. We have ensured that a sufficient amount remains to pay out the dividend. What the deposit will do is grow the Permanent Fund for future generations and keep those billions of dollars safe from a raid.
There are two reasons we are taking this action. We want to grow the Permanent Fund rather than grow government. This deposit will ensure that the money in the ERA is not squandered by leaders of today and tomorrow, as they continue to face the challenges of an $8 billion revenue shortfall.
The second reason is it prevents a handful of minority Democrats from forcing a government shutdown. How? The answer is in the Constitution. When wise leaders before us created the Constitutional Budget Reserve (CBR), they said it was meant to be a “rainy day” fund. It was set up as an account the State could use to help level out the boom/bust cycles created by the volatility of oil prices such as we have seen this year with a 50-percent collapse in oil prices.
By depositing $4.9 billion into the Permanent Fund, we fortify and inflation-proof the Permanent Fund, we remove this money from the spending equation and we are able to access the CBR with a simple majority vote. We end the hostage situation and are not forced to increase spending by a minority group of legislators. The budget will be fully funded, as required by law, and we will not have touched the principal of the Permanent Fund.
Thank you for taking the time to read our reasoning behind the decision. It’s important for all Alaskans to be informed and engaged, especially in today’s fiscal environment. Please feel free to contact us with further questions or thoughts.
Senator Kevin Meyer Representative Mike Chenault
President, Alaska State Senate Speaker, Alaska State House