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Stedman outlines plan to preserve AK Perm Fund
Sen. Bert Stedman talks to the Ketchikan Chamber of Commerce on Friday at a luncheon in the Sunny Point Conference Center. Staff photo by Taylor Balkom

Daily News Staff Writer

During a Friday speech to the Ketchikan Area Chamber of Commerce, Sen. Bert Stedman, R-Sitka, outlined his plan to preserve and insulate the Alaska Permanent Fund dividend, the Alaska Marine Highway System and the economy of Southeast Alaska from Railbelt politicians.

Stedman, speaking to about two-dozen luncheon attendees, spoke at length about Senate Bill 21, a bill he sponsored with the hope of stymying appropriations from the permanent fund, a bill he says runs parallel to protecting Southeast Alaska from economic loss.

Stedman began his speech by pointing out the unique economy that exists in Ketchikan and Southeast Alaska. He noted that by nature we are insulated from some of the recessionary problems affecting other areas of the state.

“Things are looking pretty good in the Southeast — we have a really good economic base,” Stedman said. “The news of the recession in Anchorage is not something we are going to have to deal with here directly.”

That positive message soon became a warning, though.

Stedman pointed out that with the state's statutory and constitutional budget reserves whittled down to incredibly low levels, the permanent fund needs protecting.

“A year from now, if we don’t go into the permanent fund we’re not going to be able to make payroll,” Stedman said. “The mathematics are pretty pointed, that next winter we will be in the earnings reserve to meet the ongoing operational costs of the state.”

He explained that the dividend needs protecting because, to many Alaskans, it is an important part of their welfare.

“Some folks in the room (Ketchikan Chamber of Commerce) don’t need the dividend,” Stedman said. “But there are some communities with little or no cash economy and if we cut the dividend completely off, you've got another set of problems. Taking the dividend to zero I don’t think is politically viable and socially practical.”

To Stedman, those who put the fund at the most risk are legislators themselves.

“The key point is you want to block the Legislature’s ability to appropriate willy-nilly out of the permanent fund,” Stedman said. “But, if you give all of (the money) to the dividends — which would be great for those getting dividends — the state would not be able to make payroll, so that’s not going to work.”

Stedman didn’t just speak in platitudes about the dividends and how to preserve them, but rather laid out his plan, SB 21, which would alter appropriations from the income of the permanent fund.

SB 21 would essentially enact a percentage-based payout each year, determined by an average five-year percent of the permanent fund's market value.

“I've been advocating for years, long before I became a senator, for a percent-of-market-value approach,” Stedman explained. “We’re looking at a 4.5 percent payoff of a rolling average of five years.”

Since appropriation withdrawals would be limited to only 4.5 percent of the permanent fund's five-year-average market value, more than 95 percent of the fund would remain insulated. According to Stedman, a minimum of half of that 4.5 percent (2.25 percent) would be allocated solely to dividends, while the other half would go toward other appropriations like the general fund for state services.

Stedman’s bill puts a maximum cap of 2.25 percent on the amount of the payout that could be used for exclusively government services.

“If we did a 50-50 split on a 4.5 percent payout we’re in striking distance of a balanced budget,” Stedman said. “We have no alternative, we don’t have another cash source.”

“This proposal (SB 21) here would split it,” Stedman said. “The dividend would be about $2,000 a year with the other half going to the state, which would pretty much put us on a path to get out of this mess.”

Part of that mess, Stedman says, has a direct and dire effect on the Alaska Marine Highway System, an entity crucial to the economy of Southeast Alaska.

“It’s in a political box and I’m worried the door is going to be shut on the marine highway,” Stedman said. “And it would be pretty easy to do in the budgetary process.”

“In fiscal year 2014 there was $124 million of (general fund) money going into the marine highway,” Stedman noted. “In fiscal year 2018, it’s smashed down to $42 (million).”

Stedman used the AMHS as a way of illustrating how interconnected budgetary issues are in Alaska.

He noted that without reform of the permanent fund like he’s proposed, lawmakers might end up tapping into that in order to fill the funding gap for the AMHS, a prospect that is worrisome.

“The operating deficit of the marine highway hasn’t changed that much, and it needs probably about $85 to $90 million,” Stedman said. “So all of that difference from $42 (million) up, next year is going to be deficit numbers, and the deficit is going to come out of the permanent fund.”

“I see Rep. Dan Ortiz, I-Ketchikan, is here, he’s aware of this, …we’ll work together and try to deal with this,” Stedman said pointing out Ortiz in the crowd.

Stedman also added that he is, “looking forward to the time when we don’t need to rely on the permanent fund to run operations of the state.”

Stedman implored Gov. Bill Walker to work with the legislature to fix issues associated permanent fund appropriations so that services like the AMHS remain operational:

“I hope that the governor, if he does have a special session this fall, which I think he’s going to, I hope he puts the restructuring of the permanent fund in there, doesn’t complicate it with a bunch of bells and whistles, … but keeps it extremely straight forward so the public clearly understands what we’re doing with the program.”

During his hour-long speech to the chamber, Stedman also mentioned the Legislature’s recent success in ending cashable oil tax credits; an issue that had decidedly bipartisan support given this year’s notably divided chambers.

“The state has been very aggressive in helping the industry over the years to the tune of about $6.7 billion in credits,” Stedman said. “This year we basically eliminated that.”

According to Stedman, the passage of House Bill 111 sounded the death knell for oil companies looking to score these cashable credits while running up Alaska’s tab.

“Some folks believe that that’s how you actually incentivize, is these huge cash payments,” Stedman retorted. “No other oil basin or oil sovereign, … subsidizes the industry that way because it doesn’t work.”

For Stedman, though, the future is not all “doom and gloom.”

He noted that the passage of the state’s capital budget brought with it opportunities and appropriations for Ketchikan and the surrounding region. Stedman praised the ongoing AMHS ship construction in Ketchikan and noted the $242 million in the budget for a new ship to replace the Tustumena.

“We’ve got one more in this year’s capital budget,” Stedman said referring to the new ship. “Hopefully we are the successful location where that ship is going to be built, and we’ll have multiple years of ferry construction — that is the goal there."

Stedman also noted that he has been working legislative channels in Juneau to leverage for funding that would help improve the Ketchikan Shipyard.

“There’s a $40-plus million expansion that needs to be done at the shipyard (in Ketchikan) and I’ve been pushing in Juneau to get that shipyard finished,” Stedman said. “I hope Donald Trump helps us in Washington — he says he’s going to do big infrastructure projects around the state, and that, I hope, will be one of them.”

The Ketchikan Area Chamber of Commerce typically meets most Wednesdays for lunch, usually with a pre-arranged speaker. Friday’s event with Stedman took place at the Sunny Point Conference Center.