Alaska has long relied on the amount of money our State makes from royalties on oil and gas development. For years and years, the high price of oil ensured that we had money in our general fund to pay for new schools, new roads, state services, grants, etc. Now that oil prices have been much lower, the State doesn’t have the revenue to support its most basic functions such as educations, social services, and retirement benefits. This has forced our lawmakers to look to new ways of paying for our government services. Senate Bill 26 was introduced as a way to use a portion of the Permanent Fund to help defray the amount of lost revenue due to lower oil prices.
Due to the passage of Senate Bill 26 this year, there have been a lot of changes made to the way the Alaska Permanent Fund is managed. Both the House and Senate approved a law that restructures the way money comes in from oil and gas revenues, how it is deposited, and how much is provided to Alaskans in the form of our Permanent Fund Dividend (PFD). The money for the checks has always come out of “earned interest”, which is the pot of money that the corpus makes each year. The change in our PFD isn’t where the money is coming from, but how the dividends are calculated.
How were our PFDs calculated in the past?
In the past, our PFDs were calculated by how well the permanent fund was performing at the time. This meant that our PFDs would reflect how well our State’s investments were doing at that time. If the investments were doing good and making money, our PFD would reflect that. This also meant that if the investments weren’t performing well fiscally, we would see that reflected in our PFD with a smaller amount of money to each Alaskan.
How are our PFDs calculated NOW?
With the passage of Senate Bill 26, the amount that the state “draws” away from the earnest interest account is a percent of the total amount of the corpus. You may have heard the phrase POMV or Percent Of Market Value used in the news to describe the new way of doing business. Senate Bill 26 takes the average of five years of interest and allows the state to take up to 5.25% of that amount., thus a percent of the market value of the corpus.
This year, the State is drawing $2.7 million out of the interest account. But here is the kicker: SB 26 allows for part of that money to be spent on state government. SB 26 does not dictate how much goes to checks and how much goes to government – that is still in the hands of our legislators, and the amount will be decided each year.
So how did the legislature come up with $1,600?
Since the amount of the dividend is not part of SB 26, that amount was decided by our elected lawmakers and the final number of this year’s check was hotly debated. The $1,600 “cap” was decided on after both the House and the Senate went back and forth over numbers. Your check for next year will be a fresh debate, creating a tension in Juneau to keep Alaskans happy and to hold the line on state spending.