Daily Sitka Sentinel

Stedman: PFD Is Big Question In Budget

By SHANNON HAUGLAND
Sentinel Staff Writer

Sitka’s state senator says before working on the budget this year, he wants to make sure he has a clear picture of how big the shortfall will be.

“I don’t want to mask the true size of the deficit,” said Sen. Bert Stedman, co-chair of the Senate Finance Committee, which reviewed the first half of the governor’s proposed budget last week.

“No matter how ugly this tar pit looks – it is what it is, and let’s do what we have to do to fix it,” he said.

Stedman estimated the size of the structural deficit at between zero and $2.5 billion, depending on the size of the Permanent Fund dividend that’s paid out, among other factors. Gov. Dunleavy is proposing paying out as much as $5,000 per citizen.

The Legislature gaveled in on Jan. 19, and the Senate organized soon afterward under leadership of the Senate’s Republican majority, with Stedman once again named Finance co-chair. The committee started work last week reviewing Gov. Dunleavy’s budget, which was released in December.

“Even if we adopted his proposals, we still have about a $400 million deficit,” Stedman said. “I doubt very much we’ll be contesting all of his proposals, but we’ll need a clear view of the structural deficit so we can focus our policy discussion on dealing with it. And try to benchmark what’s the possibility for budget projections, and what magnitude.”

From left, Alaska Senate President Peter Micciche and state Sens. Mia Costello, Bert Stedman and Shelley Hughes confer during the Senate floor session on Jan. 20 in Juneau. (Sean Maguire/Alaska’s News Source via AP, Pool)

Stedman said the state has enough revenue to meet obligations in the operating budget – but that’s without a dividend.

“But we’re going to pay a dividend,” Stedman said. “The question is what size dividend do we pay and how do we pick up additional reductions and expenditures from other revenue sources, and that might take a couple years (of working through the process to fix the deficit).”

Stedman expects a lot of discussion will occur around changing the dividend formula.

“(Dunleavy’s) dividend formula would still leave a $400-million-plus deficit,” Stedman said. “His rewrite is $2,300 apiece. But we still have a deficit issue so we have to do something else also, or lower the dividend or you run a structural deficit till you run out of cash and you implode the system and nobody has a dividend.”

Stedman said Alaska has to pay out a “reasonable dividend,” but did not say how much it should be.

The senator also expects a number of discussions around how much to draw out of the Permanent Fund earnings reserve. He said that while he regards the current drawdown of around 5 percent as a little high, the governor’s budget calls for an 8 to 10 percent draw.

“That’s unsustainable in every way, shape and form,” Stedman said. Higher payouts, as proposed by the governor this year, may provide short-term gains this year but would end up costing Alaskans in the future with smaller or no dividend payouts.

Stedman said the Finance Committee will continue its work reviewing the budget this week. He plans to meet with the governor to discuss some of the committee’s concerns after that.

Stedman said he has his eye on other factors contributing to budget challenges including the effect of COVID-19 on the state and Southeast economy, particularly fishing and tourism.

He expressed concerns about  President Biden’s proposal to “lock up” federal lands and waters, which could cause further harm to the fishing industry.

Stedman also expressed concerns about the lack of a capital budget, and the state’s falling behind in school and other infrastructure construction and maintenance, as well as the capital needs of the ferry system.

He said the problem of the state’s structural deficit can’t be fixed by new taxes, or overdrawing the Permanent Fund, which would have serious repercussions.

“You couldn’t tax (the citizens) that much,” he said. “We’ve got to fix the problem. There’s no free lunch and the math has got to work. ... Last year’s dividend of $1,000 – it’s still going to take work to reach that. The higher the dividend, the more the impacts to the Permanent Fund until at some point you don’t have a Permanent Fund. It’s been liquidated out. And that’s the issue in front of the Legislature: Is the Permanent Fund permanent? Do we pass it on to future generation of Alaskans, or do we just spend it? I for one want to see the Permanent Fund for future generations. I don’t want to see it liquidated; I don’t want to see it overdrawn – that doesn’t mean it won’t happen.”