An increase in oil prices that has benefited Alaska coffers spurred another political fight in the Last Frontier over how much to hand out to state residents from the state’s Permanent Fund.
The state’s preliminary revenue forecast released by the Department of Revenue on Friday showed that the recent increase in oil prices could lead to the state government receiving $1.2 billion more than expected this year.
As oil prices climbed, Gov. Mike Dunleavy proposed Senate Bill 4001 on Oct. 4 that would have immediately appropriated funds for a supplemental dividend from the fund to Alaskans, but the Senate Finance Committee failed to take up the bill before its special session ended on Nov. 2.
Alaska Governor’s Office
The fund was created in 1976 to help save some of the state’s oil revenue bounty for future generations.
Moody’s Investors Service revised the state’s outlook to stable from negative in April and affirmed an Aaa3 rating.
The rating agency also said it expected Alaska to meet its funding obligations for the state operating budget using sustainable draws on the Permanent Fund’s Earnings Reserve Account combined with oil production and other revenue.
“As the U.S. and other countries seek to move away from fossil fuels, Alaska recognizes that it needs to create a fiscal model that is not so reliant on oil production,” Moody’s analyst Ted Hampton told The Bond Buyer in April. “The move to stable acknowledges that the state’s draw on the Alaska Permanent Fund earnings can play a role in creating that model.”
Moody’s had initially revised the outlook to negative in July 2019 citing the state’s political paralysis.
Fitch affirmed an A-plus rating on the state’s GOs and retained a negative outlook in April.
The rating “reflects a narrower economic base than most states have, offset by a robust Permanent Fund, a Permanent Fund Earnings Reserve account and the Constitutional Budget Reserve Fund,” Fitch analysts wrote. “In combination, these main reserves represent key drivers of fiscal performance over the long-term. Alaska’s steady draws on its reserves to fund operations in recent years leave it in a weaker fiscal position than most states. The Negative Outlook reflects the direction the rating is likely to move should the state fail to enact measures in fiscal 2022 that produce sustainable fiscal balance.”
At the time, Dunleavy was pushing lawmakers to issue dividends from the Permanent Fund that exceeded the state constitution’s stricture of not drawing down more than 5% annually to maintain the fund’s core amount.
The state’s GDP was flat to declining from 2013 to 2019, exacerbated by a rapid deterioration in crude oil prices from late 2014 that reduced related employment, resulting in the state’s unemployment rate exceeding that of the nation, according to Fitch. However, while the state’s unemployment rate worsened in 2020 to 7.8% due to pandemic-driven economic contraction, it was outpaced by the national unemployment rate’s sharper jump to 8.1%. Fitch’s analysts wrote.
Six Republican senators penned a letter to fellow Republican Sens. Bert Stedman and Click Bishop, who are the co-chairs of the Senate Finance Committee, urging them to approve the governor’s proposal for the permanent fund before the Nov. 2 end of the fourth special session. The bill was introduced by the Senate Rules Committee at the request of Gov. Dunleavy on October 4, the first day of the Fourth Special Session. On that day, it was referred to the Senate Finance Committee for action where it stalled.
“As you are likely aware, the bill appropriates funds for a supplemental dividend to be paid to Alaskans as soon as possible,” the Senators wrote. “Regardless of any one Senator’s position for or against this proposal, we all agree that this is an issue of great importance to all Alaskans, and it deserves to be heard and acted upon.”