As codified in current law, Alaska’s Permanent Fund Dividend (PFD) functions much like a preferred corporate dividend. The amount is set by rule rather than determined periodically on an ad hoc basis, and must first be set aside from its source before other amounts are calculated.
On Tuesday of this past week, early in the House Finance Committee’s deliberation of the then-current draft of House Bill 263, the Fiscal Year (FY) 2027 Operating Budget, Representative Neal Foster (D-Nome), one of the co-chairs, proposed an amendment that would have respected that status by providing for a PFD calculated in accordance with current law.
The amendment – Amendment 12 in the packet then before the Committee – proposed to fund the PFD entirely from the source provided for under current law, the statutory percent of market value (POMV) draw from the Permanent Fund, thereafter, as also provided by current law, appropriating “the remaining balance [of the POMV draw], estimated to be $1,524,965,095, to the general fund for the fiscal year ending June 30, 2027.”
As Foster explained, the amendment followed current law. He urged lawmakers to either follow the statute or, if they didn’t like it, to change it formally.
During the debate, some claimed that funding the PFD as provided under current law would require making an additional draw from the Permanent Fund’s Earnings Reserve Account (ERA), the source of the funds for the POMV draw, or from other savings. But as Foster correctly explained, that was not the result either of current law or the amendment.
Instead, all that would be drawn from the POMV would be the amount designated by current law. Any excess draw from the ERA or other savings would be to fill funding gaps in the general fund budget.
Foster explained that closing those funding gaps instead by reducing the amount statutorily designated for the PFD would disproportionately affect middle- and lower-income residents. “Each year, the Legislature reduces the PFD more and more. Why do we ask low-income Alaskans to take the hit?” he said. “I want to help Alaskans put food on the table, keep the lights on.”
Instead, Foster argued Alaska families deserve their share of Permanent Fund earnings. “The cost of living is skyrocketing, and Alaskans feel inflation, from food to health care and to raising children,” Foster said. “I just don’t know how many Alaska families are going to get by.”
During the debate, other members of the Committee discussed alternative ways to fund the budget and agreed with Foster that PFD cuts would have a disproportionate impact. Representative Alyse Galvin (I Anchorage), for example, talked about her “high-earner income tax” that we analyzed in last week’s column. During her turn, Representative Nellie Jimme (D – Toksook Bay) advocated for new tax revenue, including taxes on oil companies and high earners.
Despite their rhetoric (or, to borrow Jimmie’s phrase, “political messaging”), both voted with five others on the Committee to continue using PFD cuts to close the budget gap. As a result, Foster’s amendment ultimately was defeated, 7-4. Two Republicans, Representatives Will Stapp (R – Fairbanks) and Jeremy Bynum (R – Ketchikan) voted with five from the House majority to reject “following the law.”
A tax is “a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.”
Under Art. 9, Section 16 of the Alaska Constitution, “[a]ll income from the permanent fund shall be deposited in the general fund unless otherwise provided by law.” Current law provides in turn that “[a]t the end of each fiscal year, the [permanent fund] corporation shall transfer from the earnings reserve account to the dividend fund established under AS 43.23.045, 50 percent of the income available for distribution under AS 37.13.140.”
Under the Alaska Supreme Court’s decision in Wielechowski v. State, a legislature can withhold and divert a portion of the distribution designated for Alaska residents to other purposes during the course of any given year’s appropriation process. But in our opinion and those of others, including Professor Matthew Berman of the University of Alaska-Anchorage’s Institute of Social and Economic Research, such an action is as much a tax on those distributions as any other time the government provides for the compulsory contribution to state revenue of other types of realized or unrealized income through withholding and diversion.
Regardless of whether it’s considered a “tax” or just another funding mechanism, however, using PFD cuts to fund government has real-world effects on Alaska households.
In the following chart, we analyze those effects by income bracket, using the “full” FY 2027 PFD level projected in Governor Mike Dunleavy’s (R – Alaska) initial FY 2027 ten-year plan ($3,650 per PFD) and the “reduced” PFD level projected by some that will ultimately be included in the budget ($1,000 per PFD).
While many focus on their impact on low-income Alaska households, as this chart shows, using PFD cuts as a funding mechanism also has a significant impact on middle-income Alaska households – using the most recent state-level data available from the Internal Revenue Service, those with household incomes of between $31,047 and $112,200) – the leading segment in the state’s net outmigration.
Conversely, and what few mention, is that using PFD cuts to fund government is a huge benefit to upper-income Alaska households. If recovered proportionately, the additional costs of government – those above the sum of traditional revenues, plus the share of the POMV draw allocated under current law to government – would result in about a 4.5% effective state income tax rate. As the following chart shows, by using PFD cuts instead, upper-income households – which include most legislators and their largest donors – increasingly contribute much, much less.
While households in middle and lower-income brackets “contribute” significantly more as a share of income using PFD cuts to raise revenue, those in the upper-income bracket actually make money – keep more in their pockets – by using PFD cuts instead of a proportional approach. Economically, by contributing more than the average, middle and lower-income Alaska households actually subsidize upper-income households.
As covered in the press, later in the week, the committee passed a second amendment dealing with the PFD – Amendment 11 in the packet before the Committee on Thursday – which utilizes an ad hoc procedure dependent on a subsequent draw from savings, to pay a full PFD.
While some may claim that the amendment, as passed, is equivalent to complying with current law, it’s not. As passed, the amendment divides the PFD into two parts, paying one part from general fund revenues and making the second part contingent on a later vote approving a further draw from savings. Both parts essentially turn the PFD into the functional equivalent of a corporate common dividend, determined periodically on an ad hoc basis, rather than, as provided under current law, consistently by rule.
Others argue that making PFD cuts is necessary to maintain state spending levels. But that’s also not true. As we have explained repeatedly in previous columns, equivalent revenue can be raised in any number of other, lower-impact ways. The only “advantage” of using PFD cuts is that the money is being held in the state’s bank accounts pending distribution (and thus more easily accessible), and using it has the least impact on most legislators and their largest donors.
That doesn’t make it “necessary,” just preferable from the perspective of their personal economics. Or, as we explained in a previous column, “they don’t really object to ‘free money,’ they just want more of it to flow to their pockets instead.”
We agree with Foster’s argument last Tuesday. Legislators should vote to follow the current law. Doing less only tilts the table unnecessarily against middle- and lower-income Alaska families, who together make up 80% of the state.
Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies. You can follow the work of the project on its website, at @AK4SB on Twitter, on its Facebook page or by subscribing to its weekly podcast on Substack.