Tempers flare in Alaska over governor's oil check plan

By BECKY BOHREREnergyAssociated Press

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In this Feb. 27, 2019 photo, protesters attend a rally at the Capitol in Juneau, Alaska, to show opposition to budget cuts proposed by Gov. Mike Dunleavy as part of his plan to provide Alaskans a full payout from the state's oil-wealth fund. Many state residents believe the proposed cuts to government services and programs would go too far. (AP Photo/Becky Bohrer)

During Republican Mike Dunleavy's successful run for governor last year, he offered few specifics for his vision of limited government but was clear that Alaska residents should get a full payout from the state's oil-wealth fund.

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Lawmakers and Dunleavy's predecessor kept the annual checks at $1,600 or less the past few years as they struggled to address a budget deficit that has persisted amid low to middling oil prices and is now estimated at $1.6 billion.

Dunleavy's call for paying the full amount this year, around $3,000 each, plus what they missed out on the past three years, was a centerpiece of his campaign.

But now that he's governor, residents are learning what it will take to pay a full dividend, and many don't like their options.

Dunleavy has proposed sweeping cuts, including potentially selling a state museum; idling Alaska's ferry fleet while the future of that service, critical to many coastal communities, is debated; slashing health and social service programs; shifting costs to local governments; and cutting the University of Alaska system budget by an amount nearly equivalent to the cost of running two of its three flagship campuses.

Some see this as a manufactured crisis that doesn't consider potential new or increased taxes and too highly prizes the annual checks over education and other government services.

The formula for calculating the amount residents receive from Alaska Permanent Fund earnings is set in state law, based on an average of the fund's income over five years. Starting in 2016, former Gov. Bill Walker and the lawmakers capped the yearly dividend, at $1,022, $1,100 and $1,600. A full dividend this year would be roughly $2,900 to $3,100.

Alaska has no personal income or state sales tax.

Frank Kelty, the mayor of Unalaska, a community of about 4,300 along the far-flung Aleutian Islands that is home to one of the nation's busiest fishing ports, likens Dunleavy's quest to pay a full dividend to President Donald Trump's push for a U.S.-Mexico border wall.

"The governor's looking at any kind of pool of money he can try and grab, and it's all going into this dividend promise that he made," Kelty said. "I don't think that's right."

Dunleavy argues the state must live within its means. He says spending is the problem, not the dividend, and sees revenue that would come from new or increased taxes as a pathway to more spending. Dunleavy is seeking constitutional changes that include a spending cap, giving voters a say on tax or dividend changes approved by lawmakers and giving the Legislature a say on tax-related voter initiatives. Key senators have begun kicking around the idea of a change in the dividend calculation.

He hasn't said if he would accept a smaller dividend, or how heavily he'll wield his veto power. He said he's willing to use "every tool available to make sure we have our fiscal house in order."

Lawmakers in recent years blew through billions of dollars in savings as they struggled to address the deficit. With savings dwindling and disagreement over taxes and continued cuts, they began tapping permanent fund earnings, typically used to pay dividends and fortify the nest-egg fund, to help pay for government last year. This created tension, with the decades-old dividend, widely considered an entitlement, seen as competing against other programs for funding.

A new law that seeks to limit what can be taken from fund earnings calls for a withdrawal of $2.9 billion for the coming budget year for both dividends and government expenses. Paying a full dividend for 2019 alone would take $1.9 billion. That doesn't include any back-payment.

The dividend provides a financial boost more critical for residents with lower incomes and those in high-cost rural areas. Checks have ranged from about $331 a person in the program's early years to $2,072 in 2015, the year before it was capped.

Roger Stone, a Dunleavy supporter from Ketchikan, doesn't agree with everything Dunleavy proposed but sees his budget as a wake-up call that something's got to give.

"I think that they need to take a hard look at what's really necessary in state government," Stone said of lawmakers. Once that happens, he said he's willing to have a lower dividend, seeing that as preferable to a sales or income tax.

Former state Sen. Rick Halford unsuccessfully sued Walker for roughly halving the amount available for dividends in 2016 and agrees with Dunleavy's effort to pay a full dividend. But he said it isn't a full debate when options such as taxes on oil and other resources aren't being considered.

"Nothing should be off the table," he said.

Jan MacClarence said she and her husband, who are in their 70s, are moving from a state-owned elder-care facility in Anchorage after 3½ years and into an apartment to avoid the budget stress. State officials have proposed rate increases of between 40% and nearly 140% for Pioneer Home residents to reflect costs of care, though they have said no one would be evicted or barred entry based on their ability to pay.

MacClarence said being on their own and using food delivery and personal care services as needed is better than worrying every year about what lawmakers might do.

As lawmakers have held hearings around the state on Dunleavy's budget proposals, the governor has begun traveling to make his case.

He's faced criticism for participating in what some see as friendly venues, including events hosted by the limited government group Americans for Prosperity-Alaska, which asked people to register in advance and reserved the right to kick out anyone who was disruptive. Some of the gatherings drew protesters; police alleged one woman yelled at the governor in Nome and resisted their commands, but the prosecutor there declined to pursue charges.

Community meetings and some budget hearings held by lawmakers have drawn big crowds. Hundreds spoke against cuts to the ferry system, a thoroughfare for coastal communities not connected to the mainland road system.

The state wants to hire a consultant to recommend "reshaping" the system and reducing its costs. Dunleavy has expressed openness to keeping some runs going while that process plays out, but no boats are currently set to sail past Oct. 1.

Many residents of small southeast Alaska communities travel by ferry with their cars to the bigger city of Juneau to buy supplies at places like Costco, or fly there and take the ferry home. Walt Weller, the mayor of Pelican, a town of about 70 people 70 miles (113 kilometers) west of Juneau, called the ferry a lifeline.

"When you're out here at the end of everything — I mean no roads, float planes only — 100% weather-dependent, we're pretty doggone dependent on that ferry," Weller said. He acknowledges people choose to live there but said the ferries — even with limited runs — have helped make that possible.

"To have people claim that they're going to give everybody giant (dividend) checks and then rip our road out from underneath us is fairly upsetting," he said.