State government
Fiscal plan is signed – now comes the hard part
Gov. Bill Walker signed the state budget and a bill allowing Permanent Fund earnings to used to help pay for it, a landmark diversification of revenue sources. Previously, oil and gas revenues, which are volatile, paid most of the budget.
Standard and Poor’s Global Ratings immediately upgraded the state’s credit rating and revised its outlook for Alaska from negative to stable. The upgrade applies to state General Obligation debt, now rated AA, up from A, as well as the state municipal bond bank.
Senate Bill 26, which the governor signed, al- lows for an annual percent-of-market-value draw on the Fund’s earnings. But there is still an instability built into the system, so the fiscal restructuring is not yet done.
Under SB 26 an amount will be drawn under the POMV that will fund both the state budget and the annual Permanent Fund dividend. The Legislature will have to decide how much goes to the budget and how much to PFDs. That will be an interesting debate every year, especially given built-in upward pressures on the budget (see page 2). More fundamentally, the percent rate on the annual draw, although set now in statute, can be ignored by the Legislature. If funds are tight, there’s nothing blocking lawmakers from using a 6 percent or 7 percent draw, for example, in lieu of the 5.25 percent, dropping to 5 percent, now in the bill. Financial advisors have said even 5 percent is too high to ensure long-term sustainability.