PFD suit for dummies


If the Legislature is legally required to appropriate money to the Alaska “dividend fund” every year, Gov. Bill Walker is legally entitled to veto the appropriation, and those Alaskans mad about getting less than half of an expected $2,100 dividend this year are screwed.

But the law is not exactly clear on this, which is why one sitting state lawmaker and two former lawmakers have sued the governor.

The governor’s office and some lawyers will argue the money has to be appropriated annually, that it can’t go straight from the state’s Permanent Fund Corporation to you because the  Alaska Constitution very specifically says “the proceeds of any state tax or license shall not be dedicated to any special purpose, except as provided in section 15 of this article or when required by the federal government for state participation in federal programs.”

Alaska Supreme Courts have over the years repeatedly rebuked legislative efforts to established dedicated funds. But the Permanent Fund is different. The Permanent Fund is itself a dedicated fund established by Constitutional amendment.

The Alaska Permanent Fund amendment, the above referenced “section 15,” was added to the Constitution in 1976 when Alaskans voted 75,588 to 38,518 in favor. The amendment, however, says nothing about dividends. All it says is this:

“All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law.”

Still, the amendment itself would appear to trump Article 9’s prohibition on dedicated funds created to use state taxes or fees, because the PFD doesn’t come from taxes or fees. It comes from a portion of the earnings of the Permanent Fund Corporation the state set up in 1980 to manage the dedicated fund voters approved in 1976.

What we have been living with in Alaska for the past 34 year is a dedicated payment from a money-making dedicated fund, something the authors of  the state Constitution never imagined.

And it is worth noting that in all this time no one has ever challenged the PFD as a Constitutionally illegal dedicated fund.

Murky waters

The interesting part comes next, because what the Legislature did in 1980 when it wrote the law creating the Permanent Fund Corp. and the dividend was to direct where some of the income deposited in the general fund would go.

It executed the “unless otherwise provided by law” clause in the amendment.

The Legislature wrote and the late Gov. Jay Hammond, a big fan of the PFD, signed a law stipulating that at the end of every fiscal year, the corporation is supposed to calculate how much money has been made on Permanent Fund investments and “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.”

AS 43.23.045 is the dividend statute. It further stipulates that by Oct. 1 of every year the Commissioner of Revenue is basically supposed to look at how much money is in the “dividend account,” divide that number by the number of Alaskans eligible for dividends, and calculate the size of your PFD.

There is usually a great deal of hoopla surrounding the announcement of the size of this number. It will be interesting to see how the Walker administration handles the announcement this year.

As with most government programs, of course, the calculation of the dividend isn’t quite as simple as outlined above. There are provisions for first removing from the dividend calculations the costs of administering the PFD program, the cost of paying for previous years dividends that for whatever reason didn’t get paid, and any loss due to “appropriations from the dividend fund during the current year.”

What exactly that last phrase means will be up to the courts to decide. But it appears to suggest that unless the Legislature takes money out of the dividend fund, the money there goes directly to Alaskans as PFDs.

The Legislature did not take any money out of the fund this year, though it did work on legislation that would have done so under certain circumstances. With the state of Alaska facing a more than $3.5 billion budget shortfall, there are good arguments to be made for using some of the earnings of the fund to pay the costs of government.

Good arguments failed

The good arguments were not enough, however, to convince the members of the state House to go along with a new state financing plan. Some simply didn’t want to see the PFD reduced. Others wanted some serious cutting of the state budget before tapping the permanent fund earnings.

The governor twice called lawmakers back to Juneau to try to force them to amend the Permanent Fund law to use some of the earnings to pay for government. The House wouldn’t bend.

Legislators eventually went home with no new agreement on spending the earnings, but they did approve a budget that contained a key provision that has been ongoing for decades, the Legislature’s rubber-stamp of approval on the payment of PFDs.

After the lawmakers left Juneau, Walker went where no governor has gone before and vetoed more than half of the money expected to provide Alaskans a dividend of about $2,100. Instead, the governor says you will get $1,000 each and government will keep the rest to help pay its costs.

The Walker administration’s argument here is simple: If there is money in a budget approved by the Legislature, the governor has the authority to veto that spending. But the case is not so clear as involves the PFD.

There is an argument to be made that the Legislature has for a long time been going through a meaningless act in appropriating funds for the PFD because those funds are legally mandated to go directly from the dividend fund to the Revenue Department for distribution to Alaskans.

Legislators annually engaging in a sham so they will be able to tell voters “we approved your PFD”? That couldn’t happen, could it?

This could be an interesting case.








3 replies »

  1. If I’ve got this right, Walker vetoed the movement of money from the Permanent Fund Earnings account to the Permanent Fund distribution account. And if money in the Permanent Fund Earnings account can only be accessed by the vote of the legislators, why did Walker think this would help the budget? If it’s not in the General Fund, it doesn’t help anyone. So he took $1000 from every Alaska in the HOPE that legislators MIGHT vote to use the money? But what if legislators don’t tap the Earnings Fund, out of spite towards Walker, political infighting or to force needed state cuts? Then what was the point of taking this money from Alaskans in the first place? Seems like Walker is good at knee-jerk policy making. Make a bold decision, then figure out if it makes sense after the fact.

  2. There simply is no way to expend government funds absent an appropriation from the legislature and the Governor of Alaska has the Constitutional authority to veto appropriations. The courts are loath to require the judiciary to perform the functions of the other two branches of government and will “run to daylight” to avoid that situation. That said, perhaps an equally interesting question is from where exactly does our legislature plan to glean the funds necessary to pay for the PFD by statute if the litigants prevail?

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