NEWS OF THE DAY:
A Quick Look at the Different Proposed Amendments to Alaska’s Permanent Fund
Ed King, King Economics Group, May 27, 2021
As Alaska continues to work through falling oil revenues, changes to its Permanent Fund appear inevitable. There are currently six resolutions up for debate that would adjust the way the Permanent Fund functions. This article takes a high-level look at the differences and similarities between those proposals.
The Current Language
Before we look at what the proposed amendments do, it might be good to remember what the current language says:
Article IX – Finance and Taxation
§ 15. Alaska Permanent Fund
“At least twenty-five per cent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law. [Amended 1976]“
Alaska State Constitution
Proposed Changes to Current Language
All the resolutions propose to alter the language in section 15 and add new subsections to it. Each of the proposals offer similar changes to account for the new POMV approach while maintaining the current savings rule. There are some small deviations in the wording, but none of them are substantially different in effect. Here is how the final amendment to the current language would probably read:
“(a) At least twenty-five percent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund, which shall be used for income-producing investments specifically designated by law as eligible for permanent fund investments. Except as provided in this section, the principal of and all income from the permanent fund shall be retained in the fund.”
OIL:
IEA’s Birol’s warns of ‘upward pressure’ on oil prices if OPEC sticks to output plan
Robert Perkins, Andy Critchow, S & P Global Platts, June 1, 2021
OPEC+ meeting June 1 to discuss current output policy
Oil market will tighten without a faster easing of production cuts: Birol
Oil prices approach three-month high despite potential deal with Iran
Global oil prices will face further upward pressure unless OPEC and its oil producer allies agree to return more crude to the markets in the coming months to meet a strong demand rebound, according to the head of the International Energy Agency Fatih Birol.
OPEC+ ministers are meeting June 1 to weigh their current policy of raising production by a combined 2.1 million b/d over the May-July period. The move comes as oil prices trade near a three-month high of $71/b, fueled by signs of a surge in global oil demand this summer as most countries lift pandemic lockdowns.
“Over the next six months, I see very clearly that there is a strong recovery of oil demand in the US, China, Europe and elsewhere and if OPEC+ stick to their current policies we may see a wider gap between supply and demand,” Birol told Bloomberg in an June 1 interview.
“In the absence of not changing the policies with the strong growth coming…we’ll see a widening gap which in turn would put further upward pressure on the prices,” he said.
In its latest oil market report last month, the IEA said it sees a major oil demand rebound of some 6.5 million b/d between the first quarter and the end of 2021, and forecast that likely supply growth by the OPEC+ group and others would be “nowhere close” to the expected demand increase.
It cautioned that current production plans by OPEC+ “won’t rise fast enough to keep pace with the expected demand recovery,” even if a nuclear deal with Iran sees more volumes coming from the OPEC member later this year.
OPEC+ countries, which held almost 7 million b/d of production offline in April, are in the process of boosting output by some 2.1 million b/d from May-July — roughly 2% of pre-pandemic demand — of which 1.4 million b/d will come from Saudi Arabia.
OPEC+ delegates told S&P Global Platts last week that the 23-country alliance would likely stick with its plans to relax output quotas until more clarity emerges over the fate of the Iran nuclear deal and the impact of coronavirus containment measures in India, Japan, Taiwan, and other hotspots.
Platts Analytics forecasts robust global oil demand growth of 5.1 million b/d in June and July, with supply still bullishly remaining 1.5 million b/d in deficit.
GAS:
Battle Brews Over Banning Natural Gas to Homes
Katherine Blunt, The Wall Street Journal, May 31, 2021
A growing fight is unfolding across the U.S. as cities consider phasing out natural gas for home cooking and heating, citing concerns about climate change, and states push back against these bans.
Major cities including San Francisco, Seattle, Denver and New York have either enacted or proposed measures to ban or discourage the use of the fossil fuel in new homes and buildings, two years after Berkeley, Calif., passed the first such prohibition in the U.S. in 2019.
The bans in turn have led Arizona, Texas, Oklahoma, Tennessee, Kansas and Louisiana to enact laws outlawing such municipal prohibitions in their states before they can spread, arguing that they are overly restrictive and costly. Ohio is considering a similar measure.
The outcome of the battle, largely among Democratic-led cities and Republican-run states, has the potential to reshape the future of the utility industry, and demand for natural gas, which the U.S. produces more of than any other country.
Proponents of phasing out natural gas say their aim is to reduce planet-warming emissions over time by fully electrifying new homes and buildings as wind and solar farms proliferate throughout the country, making the power grid cleaner.
Homes and businesses account for about 13% of the nation’s annual greenhouse gas emissions, according to the Environmental Protection Agency, mostly because natural gas is used in cooking, heating, and washers and dryers. Climate activists say reducing that percentage is critical for states with goals to slash carbon emissions in the coming decades.
Opponents in the gas industry counter by citing the higher costs of making many homes fully electric, and pointing to the added security of having a second home energy source to heat and cook with during extreme weather events. They also highlight the preference many home and professional chefs have for using gas-fired stoves.
New all-electric homes are cost-competitive with those that use gas in many parts of the country, but retrofits can be considerably more expensive, depending on the existing heating and cooking systems and the cost of effectively converting them. A recent study by San Francisco found that retrofitting all housing units that now use natural gas would cost between $3.4 billion and $5.9 billion, costs that would fall on residents, the city or both.
Induction ranges, which use magnets to heat pots and pans directly, can be more expensive to buy than gas ranges, especially in professional kitchens. Restaurant associations across the nation have raised concerns about going electric.
Utilities that supply both electricity and natural gas could face more muted impacts if the shift accelerates. But those that supply only natural gas face the prospect of slower growth or even a reversal of demand, especially if momentum builds to electrify both new and existing homes.
Greater reliance on electricity raises the possibility that parts of the natural-gas delivery system will become stranded assets, facilities that retire before they pay for themselves. The Environmental Defense Fund, a nonprofit environmental advocacy group, in 2019 warned that in California, where gas utilities spend billions of dollars on their systems each year, stranded assets could complicate efforts to move away from gas by saddling customers with higher costs over time.
President Biden’s $1.7 trillion infrastructure plan calls for greater adoption of all-electric heat pumps and induction stoves, giving proponents hope that the government will do more to incentivize their adoption.
Panama Bartholomy, director of the Building Decarbonization Coalition, which supports efforts to electrify buildings throughout California, said the organization is pushing for the state to cut emissions from homes and businesses by 40% by 2030, and to adopt zero-emission building codes for each within the next few years.
“All of a sudden there’s a conversation happening that wasn’t happening two years ago,” Mr. Bartholomy said. “It’s the fastest-growing trend we’ve ever seen.”
Industry pushback has been swift, with many utilities and businesses voicing opposition to local gas bans.
Arizona last year became the first state to pass pre-emptive legislation barring municipalities from banning new gas hookups. The Arizona Chamber of Commerce helped lead a coalition of businesses that pushed for the legislation, even though no bans were under consideration in the state at the time. Garrick Taylor, the chamber’s interim chief executive, said the legislation was born of concerns that bans would result in higher electricity costs and reduced energy choices for residents and businesses.
If you see something next door in California, there’s a chance that a municipality in your state is likely going to consider it,” Mr. Taylor said.
The American Gas Association, a national lobbying group, has been pushing for state laws prohibiting local bans. President Karen Harbert said an indiscriminate approach to widespread electrification could put strain on the grid, resulting in either higher electricity prices or greater reliance on gas-fired power plants.
“You have to do the math,” she said. “We can’t just say if we electrify everything, we’re going to solve the challenge of climate change.”
State agencies in California, Colorado, Massachusetts and New York have launched efforts to assess how the role of gas utilities may change in the coming years if demand plateaus or declines. Utilities across the country are beginning to ask the same question as they consider new gas investments.
Jan Berman, director of energy strategy and innovation at PG&E Corp. , which serves 16 million people in Northern and Central California, said it may eventually shrink its gas distribution system, if more homes are retrofitted to run entirely on electricity.
“We welcome the opportunity to avoid investments in new gas assets that might later prove to be underutilized as decarbonization efforts progress here in California,” she said.
Southern California Gas Co., a unit of Sempra Energy that is the nation’s largest gas utility, opposes bans on new hookups, arguing that customers should have the right to choose. The California Public Utilities Commission recently determined that SoCalGas misused ratepayer money to advocate against such bans and other energy efficiency measures, and ordered the company to refund customers for those efforts.
SoCalGas said it appreciates the agency’s finding that no violations, fines or penalties are warranted.
SoCalGas recently set a goal to achieve net-zero emissions by 2045. The utility is working to expand its use of renewable natural gas made from landfill waste and green hydrogen, which is produced using electricity from renewable energy sources. CEO Scott Drury said he envisions a future where the company’s existing infrastructure is used to augment wind and solar power, especially during periods of peak demand.
“What is flowing through those pipes will be different in 2045 than it is today,” he said. “How do you take the infrastructure that’s there, and use it in the most thoughtful way as a tool to enable what we’re collectively trying to pursue?”
MINING:
Alaska DEC backs Donlin water certificate
Shane Lasley, North of 60 Mining News, May 28, 2021
Alaska’s Department of Environmental Conservation has upheld a certification of reasonable assurance that the proposed Donlin Gold Mine in western Alaska will comply with the state’s water quality standards.
Donlin Gold LLC – a joint venture partnership owned equally by Barrick Gold Corp. and Novagold Resources Inc. – applied for the federal permits to develop a mine at the 39-million-ounce Donlin Gold deposit in 2012.
Following a six-year permitting process under the National Environmental Policy Act (NEPA), the U.S. Army Corps Engineers and Bureau of Land Management approved the federal permits needed to develop the mine proposed by Donlin Gold. The project partners, however, still needed to obtain state approvals before development could begin.
Part of the Alaska permitting process is the issuance of a certificate of reasonable assurance that the proposed mine approved by federal regulators will comply with the water quality standards, which was issued by DEC in 2018.
Bethel, Alaska-based Orutsararmiut Native Council, however, challenged this certificate on the grounds that DEC cannot provide reasonable assurance a mine at Donlin will meet water quality standards for temperature, mercury, and protection of existing uses.
In April, Administrative Law Judge Kent Sullivan from the Alaska Office of Administrative Hearings, who heard the case, concluded DEC had not demonstrated with reasonable certainty that Alaska water quality standards would be met.
Judge Sullivan’s decision was sent to the state for review and Alaska DEC Commissioner Jason Brune had 45 days to determine whether to accept the decision, return it to the administrative law judge to consider additional evidence, revise its enforcement action, or reject the finding.
In a 50-page response, Brune affirmed the state’s position that there is reasonable assurance that the Donlin permits issued under the federal Clean Water Act would meet Alaska’s standards for water temperature, mercury concentrations, and existing uses.
“Because I find the division’s decision is supported by a reasonable basis in law and substantial evidence in the record, I reject the positions advanced by the other parties,” Brune penned in the conclusion of Alaska DEC’s response to Orutsararmiut Native Council’s appeal of the certificate of reasonable assurance. “In this matter, ONC cherry-picked portions of the record describing potential impacts in a highly technical report and characterized them as conclusive. The division consistently and thoroughly rebutted each of ONC’s assertions with analysis of relevant information and data using its subject-matter expertise.”
Orutsararmiut Native Council has 30 days to appeal DEC’s May 27 decision to superior court.
POLITICS:
Alaska legislators say new taxes are likely needed before Gov. Mike Dunleavy’s new dividend plan can advance
James Brooks, Anchorage Daily News, May 31, 2021
Gov. Mike Dunleavy’s plan to constitutionally guarantee a Permanent Fund dividend is dead in the Alaska Legislature for the time being.
The plan would conclusively end annual debates over the amount of the dividend by permanently limiting the amount of money that can be spent from the Permanent Fund. A once-per-year transfer from the fund to the state treasury would be split 50-50, half for dividends and half for services.
Leading lawmakers, including prominent Republicans, say the governor’s proposal has merit, but because it creates large deficits for at least a few years, it needs to be accompanied by new taxes. That would require a major shift in policy by Dunleavy: Since his election in 2018, the governor has insisted on no new taxes without a statewide vote.
Senate Majority Leader Shelley Hughes, R-Palmer, said the 50-50 proposal is a “great first step,” but Dunleavy needs to act.
“Is he willing to put forward a sales tax? You know, is he willing to really stick his neck out and take some leadership to help get this through?” she said.
“The governor’s position is that we need to do (the 50-50) first, but I think to do this without the rest of the fiscal plan is not a real solution,” said Rep. Ivy Spohnholz, D-Anchorage.
As is, the Permanent Fund proposal lacks the 14 Senate votes and 27 House votes needed to advance from the Legislature and on to a statewide vote in 2022, said Senate President Peter Micciche, R-Soldotna.
In social media messages and in a Thursday legislative hearing, the governor’s administration said the new Permanent Fund plan could stand on its own for several years. Lawmakers call the governor’s projections overly optimistic. Those forecasts presume the value of the Permanent Fund grows steadily, assume budget cuts greater than any approved in the past few years, and require the Legislature to temporarily overspend from the Permanent Fund.
“If this avoids a new broad-based tax, which is a revenue measure — I’m just a little lost at that,” said Sen. David Wilson, R-Wasilla. “I prefer to have … a comprehensive plan before us now instead of waiting to the future for us to have something that may or may not be tangible.”
Revenue Commissioner Lucinda Mahoney acknowledged the criticism and said that “the Department of Revenue is currently working on two to three new revenue measures that we plan to roll out in the August timeframe,” but the department declined to provide details, and legislators said they don’t know what’s being planned.
Dunleavy has asked legislators to discuss the Permanent Fund plan during a special session in August, but that session will fall flat without additional action, legislators said.
If nothing changes, Alaska’s perennial struggle over the Permanent Fund will continue, keeping lawmakers focused on the budget and away from things like improving Alaska’s lowest-in-the-nation student reading scores and its highest-in-the-nation sex crime rate.
“I don’t hold out hope that if we continue to kick the can on the PFD that we would all of a sudden refocus and start taking taking care of these other big areas,” Hughes said.
‘Titanic shift’
Even without taxes, the existence of the new dividend plan represents a “titanic shift” in the way the Legislature thinks, said Sen. Mike Shower, R-Wasilla.
From 1982 through 2015, the Permanent Fund dividend was paid annually under a reliable formula in state law. In 2016, after plunging oil prices slashed state revenue, then-Gov. Bill Walker vetoed half the dividend to save money. Walker’s decision was upheld by the Alaska Supreme Court, and in every year since that first veto, the Alaska Legislature has ignored the traditional formula and set the dividend by fiat.
Negotiations over the amount have been tumultuous every year since and have threatened to shut down the state as supporters of the traditional formula clash with lawmakers who prefer a smaller amount that fits within a balanced budget.
But on May 12 this year, many of the lawmakers who have supported the traditional formula literally stood behind Dunleavy as he announced the 50-50 plan. On the opposite side of the debate, lawmakers who opposed a constitutionally guaranteed dividend have softened their positions or were voted out of office last fall.
After its introduction, the governor’s proposal appeared to have some momentum, but that evaporated in the final week of the Legislature’s regular session. The governor was spotted bear hunting on the Alaska Peninsula instead of lobbying legislators for support, and that attitude needs to change if he is serious about a long-term fix, said Shower and Hughes.
Shower said that If he could give the governor advice, “I would tell the governor that he would need to either introduce tax measures or make it clear that he’s going to support them and help us get those passed.”
Shower is one of the most fiscally conservative members of the Alaska Legislature, and he doesn’t take the idea of new taxes lightly. He has supported the traditional dividend formula, but he is willing to go with the 50-50 plan because it’s an improvement over recent dividend amounts.
He considers any reduction from the traditional dividend formula to be a regressive tax that takes the same amount from every Alaskan, whether they earn $10,000 per year or $100,000 per year. Whether the Legislature imposes a sales tax or cuts the dividend, the outcome is the same, he said. The only difference is who hurts the most.
“The reality is, either way, we’re going to be coming after your wallet,” he said.
Sen. Natasha von Imhof, R-Anchorage, disagrees. “Some lawmakers do not support paying a dividend that requires any taxes at this point. That’s what I think,” she said.
She isn’t opposed to a constitutional dividend and has come up with a plan of her own, but she says it doesn’t make sense to tax Alaskans in order to pay them a dividend.
Permanent Fund reaches $80 billion
Since 2015, state lawmakers have preferred to cut spending rather than impose taxes, but there is now a broad reckoning that there are few places left to substantially cut the operating budget, and those that remain are politically unfeasible. Other than the dividend, the state’s biggest expenses are K-12 education and health care.
In the first year of Gov. Bill Walker’s term, the state’s pre-Permanent Fund operating budget was almost $5.4 billion, not counting federal money or fees. It dropped by almost $1 billion in the next year, but since then, it has changed very little.
When Dunleavy attempted to cut the budget through massive budget vetoes, it sparked a recall campaign against him. The governor later walked back most of his vetoes, and the operating budget is now roughly where it was in Walker’s second year.
This year was supposed to be the moment of crisis. For most of the past decade, the state has spent from savings to boost the value of the dividend, stave off budget cuts and avoid taxes. In 2014, Alaska had nearly $18 billion in savings outside the Permanent Fund. By April this year, almost all of that had been spent.
A better-than-expected revenue forecast and the arrival of almost $1 billion in federal economic aid has improved the situation temporarily, but it doesn’t change the bottom line: The state collects enough money from taxes and the Permanent Fund’s investment earnings to cover both the operating budget and the capital budget (which funds construction and renovation projects statewide), but not enough to pay for those and a large dividend without spending more than the fund earns in an average year.
Revenue Commissioner Mahoney said on Thursday that situation is temporary.
The global economy is still recovering from the COVID-19 pandemic, and the Department of Revenue believes oil prices will rise over the next few years. With that recovery in progress and the growing value of the Alaska Permanent Fund — which reached $80 billion on Thursday — the Department of Revenue expects the state will earn more money each year through the end of the decade.
In six years, according to a budget forecast presented by Mahoney, the state will be earning enough to pay for a 50-50 dividend and both budgets without new taxes.
Lawmakers have pointed out different problems with that scenario. First, it would require lawmakers to make about $500 million in cuts, much more than they’ve been able to achieve so far.
JUNEAU — Gov. Mike Dunleavy’s plan to constitutionally guarantee a Permanent Fund dividend is dead in the Alaska Legislature for the time being.
The plan would conclusively end annual debates over the amount of the dividend by permanently limiting the amount of money that can be spent from the Permanent Fund. A once-per-year transfer from the fund to the state treasury would be split 50-50, half for dividends and half for services.
Leading lawmakers, including prominent Republicans, say the governor’s proposal has merit, but because it creates large deficits for at least a few years, it needs to be accompanied by new taxes. That would require a major shift in policy by Dunleavy: Since his election in 2018, the governor has insisted on no new taxes without a statewide vote.
Senate Majority Leader Shelley Hughes, R-Palmer, said the 50-50 proposal is a “great first step,” but Dunleavy needs to act.
“Is he willing to put forward a sales tax? You know, is he willing to really stick his neck out and take some leadership to help get this through?” she said.
“The governor’s position is that we need to do (the 50-50) first, but I think to do this without the rest of the fiscal plan is not a real solution,” said Rep. Ivy Spohnholz, D-Anchorage.
As is, the Permanent Fund proposal lacks the 14 Senate votes and 27 House votes needed to advance from the Legislature and on to a statewide vote in 2022, said Senate President Peter Micciche, R-Soldotna.
In social media messages and in a Thursday legislative hearing, the governor’s administration said the new Permanent Fund plan could stand on its own for several years. Lawmakers call the governor’s projections overly optimistic. Those forecasts presume the value of the Permanent Fund grows steadily, assume budget cuts greater than any approved in the past few years, and require the Legislature to temporarily overspend from the Permanent Fund.
“If this avoids a new broad-based tax, which is a revenue measure — I’m just a little lost at that,” said Sen. David Wilson, R-Wasilla. “I prefer to have … a comprehensive plan before us now instead of waiting to the future for us to have something that may or may not be tangible.”
Revenue Commissioner Lucinda Mahoney acknowledged the criticism and said that “the Department of Revenue is currently working on two to three new revenue measures that we plan to roll out in the August timeframe,” but the department declined to provide details, and legislators said they don’t know what’s being planned.
Dunleavy has asked legislators to discuss the Permanent Fund plan during a special session in August, but that session will fall flat without additional action, legislators said.
If nothing changes, Alaska’s perennial struggle over the Permanent Fund will continue, keeping lawmakers focused on the budget and away from things like improving Alaska’s lowest-in-the-nation student reading scores and its highest-in-the-nation sex crime rate.
“I don’t hold out hope that if we continue to kick the can on the PFD that we would all of a sudden refocus and start taking taking care of these other big areas,” Hughes said.
‘Titanic shift’
Even without taxes, the existence of the new dividend plan represents a “titanic shift” in the way the Legislature thinks, said Sen. Mike Shower, R-Wasilla.
From 1982 through 2015, the Permanent Fund dividend was paid annually under a reliable formula in state law. In 2016, after plunging oil prices slashed state revenue, then-Gov. Bill Walker vetoed half the dividend to save money. Walker’s decision was upheld by the Alaska Supreme Court, and in every year since that first veto, the Alaska Legislature has ignored the traditional formula and set the dividend by fiat.
Negotiations over the amount have been tumultuous every year since and have threatened to shut down the state as supporters of the traditional formula clash with lawmakers who prefer a smaller amount that fits within a balanced budget.
But on May 12 this year, many of the lawmakers who have supported the traditional formula literally stood behind Dunleavy as he announced the 50-50 plan. On the opposite side of the debate, lawmakers who opposed a constitutionally guaranteed dividend have softened their positions or were voted out of office last fall.
After its introduction, the governor’s proposal appeared to have some momentum, but that evaporated in the final week of the Legislature’s regular session. The governor was spotted bear hunting on the Alaska Peninsula instead of lobbying legislators for support, and that attitude needs to change if he is serious about a long-term fix, said Shower and Hughes.
Shower said that If he could give the governor advice, “I would tell the governor that he would need to either introduce tax measures or make it clear that he’s going to support them and help us get those passed.”
Shower is one of the most fiscally conservative members of the Alaska Legislature, and he doesn’t take the idea of new taxes lightly. He has supported the traditional dividend formula, but he is willing to go with the 50-50 plan because it’s an improvement over recent dividend amounts.
He considers any reduction from the traditional dividend formula to be a regressive tax that takes the same amount from every Alaskan, whether they earn $10,000 per year or $100,000 per year. Whether the Legislature imposes a sales tax or cuts the dividend, the outcome is the same, he said. The only difference is who hurts the most.
“The reality is, either way, we’re going to be coming after your wallet,” he said.
Sen. Natasha von Imhof, R-Anchorage, disagrees. “Some lawmakers do not support paying a dividend that requires any taxes at this point. That’s what I think,” she said.
She isn’t opposed to a constitutional dividend and has come up with a plan of her own, but she says it doesn’t make sense to tax Alaskans in order to pay them a dividend.
Permanent Fund reaches $80 billion
Since 2015, state lawmakers have preferred to cut spending rather than impose taxes, but there is now a broad reckoning that there are few places left to substantially cut the operating budget, and those that remain are politically unfeasible. Other than the dividend, the state’s biggest expenses are K-12 education and health care.
In the first year of Gov. Bill Walker’s term, the state’s pre-Permanent Fund operating budget was almost $5.4 billion, not counting federal money or fees. It dropped by almost $1 billion in the next year, but since then, it has changed very little.
When Dunleavy attempted to cut the budget through massive budget vetoes, it sparked a recall campaign against him. The governor later walked back most of his vetoes, and the operating budget is now roughly where it was in Walker’s second year.
This year was supposed to be the moment of crisis. For most of the past decade, the state has spent from savings to boost the value of the dividend, stave off budget cuts and avoid taxes. In 2014, Alaska had nearly $18 billion in savings outside the Permanent Fund. By April this year, almost all of that had been spent.
A better-than-expected revenue forecast and the arrival of almost $1 billion in federal economic aid has improved the situation temporarily, but it doesn’t change the bottom line: The state collects enough money from taxes and the Permanent Fund’s investment earnings to cover both the operating budget and the capital budget (which funds construction and renovation projects statewide), but not enough to pay for those and a large dividend without spending more than the fund earns in an average year.
Revenue Commissioner Mahoney said on Thursday that situation is temporary.
The global economy is still recovering from the COVID-19 pandemic, and the Department of Revenue believes oil prices will rise over the next few years. With that recovery in progress and the growing value of the Alaska Permanent Fund — which reached $80 billion on Thursday — the Department of Revenue expects the state will earn more money each year through the end of the decade.
In six years, according to a budget forecast presented by Mahoney, the state will be earning enough to pay for a 50-50 dividend and both budgets without new taxes.
Lawmakers have pointed out different problems with that scenario. First, it would require lawmakers to make about $500 million in cuts, much more than they’ve been able to achieve so far.
“If you think it’s a good idea to eliminate Pioneer Homes, the Marine Highway, and de-fund public safety, then this is a great plan,” said Rep. Zack Fields, D-Anchorage, on social media.
Second, it presumes steady gains for both the Permanent Fund and oil prices, with no abrupt downturns or upswings. Third, inflation is presumed to stay at a relatively low level.
Fourth, it asks lawmakers to temporarily break an existing Permanent Fund spending cap to cover immediate needs while revenue rises. That’s something adamantly opposed by the coalition majority in control of the House of Representatives.
One of that majority’s founding principles is to stay within a 2018 law that caps transfers from the Permanent Fund. Many legislators and the governor believe they can break that cap without penalty, but doing so would reduce the amount of money that can be invested, thus reducing the amount available to the state in the future.
Permanent Fund earnings now represent two-thirds of the state’s regular revenue, more than twice the importance of oil and other taxes.
“Our caucus position is that we’re not going to overdraw,” Spohnholz said.
The Legislature’s own budgeters, using a more pessimistic model with different assumptions, estimated that the governor’s plan would run the state out of available money within two years and create a deficit of more than $1 billion by the state ran out of savings.
‘It’s time we address this’
Hughes said she believes the truth could lie between the two models, but she thinks it’s important to know that there is a penalty for inaction, just as there is for making a wrong choice on future budgets.
In Thursday’s hearing, University of Alaska economist Mouhcine Guettabi told lawmakers that he believes the state is losing out on hundreds of millions of dollars’ worth of potential investments because businesses are reluctant to spend money as long as there is uncertainty.
The inability to conclusively decide the dividend has pushed the state to the brink of shutdown several times as lawmakers struggle to set the amount each year. Budget negotiations consume time, effort and attention.
Hughes and Senate Minority Leader Tom Begich, D-Anchorage, have been working on legislation intended to improve students’ reading ability, but that has been sidelined by the need to pay more attention to the budget, she said. The same is true for her efforts to reduce Alaska’s rate of sexual assault.
“It’s time we address this, I believe, so we can get into some other important matters,” she said.
CLIMATE CHANGE:
Biden Era Brings Legal Disappointments for Environmental Groups
Ellen Gilmer, Bloomberg Law, June 1, 2021
- Defense of Trump-era policies, permits draws criticism
- Dakota Access pipeline, Arctic drilling, NEPA rule on list
Environmental advocates hoping for a complete reversal of Trump-era legal positions have faced a series of disappointments in the first months of the Biden administration—generating some early tension between the president and green groups.
Government lawyers have opposed efforts to shut down the Dakota Access pipeline, supported a massive oil project in the Arctic, and preserved an environmental review rule despised by activists.
It’s common for a new administration to defend many of its predecessor’s actions in court—either for institutional reasons inside the executive branch or simply because a previous policy isn’t controversial enough to merit a change in position.
But several recent defenses of Trump-era decisions stand out as President Joe Biden launches ambitious environmental plans and erases other parts of the last administration’s legacy. The contrast has left many environmentalists confused and angry.
“It’s worse when your friends disappoint you,” Vermont Law School professor Patrick Parenteau said.
‘Really Baffled’
That dynamic was on display last month when the Justice Department and conservation groups squared off over a Trump-era policy that allowed oil and gas leasing in sage grouse territory in the West.
The Interior Department under Biden has paused new leasing across public lands but nevertheless appeared in the U.S. Court of Appeals for the Ninth Circuit to fight to restore tracts in the rare grouse’s habitat.
“We were really baffled by DOJ’s position defending these illegally issued Trump-era leases,” Earthjustice lawyer Mike Freeman, who argued against the government that day, said in an interview. “The arguments went directly against the environmental goals that President Biden ran on.”
Southern Environmental Law Center lawyer Kym Hunter had a similar experience in April when government lawyers pushed a court to leave intact a Trump-era rule designed to streamline reviews under the National Environmental Policy Act—and argued that the NEPA rule didn’t harm environmental groups anyway.
“That argument is just really at odds with what this administration has been saying about environmental justice and community engagement,” Hunter said.
The latest affront to the environmental community came in a recent brief defending federal approval of a ConocoPhillips Alaska Inc. drilling project in the National Petroleum Reserve-Alaska.
The Biden administration has also disappointed environmentalists by maintaining Trump-era legal positions in favor of the Dakota Access oil pipeline, which just survived a shutdown battle in federal district court, and the PennEast natural gas pipeline, which is the subject of a pending Supreme Court case.
Norm or Exception?
The government’s choice to maintain the status quo in many environmental cases might anger advocates, but it shouldn’t necessarily surprise them, outside lawyers say.
“It’s fair to be disappointed by all this,” University of Denver law professor Wyatt Sassman said of environmentalists. “It’s a fair, accurate reaction. But it’s not all that unexpected to see the government take this position.”
New administrations actually defend their predecessors’ decisions more often than not, said Matthew Z. Leopold, who was general counsel for the Environmental Protection Agency under Trump.
“We all talk about the cases that are the exceptions,” he said.
The Trump administration, for example, fended off a legal attack on a marine monument President Barack Obama designated, maintained Obama-era arguments related to jurisdiction for Clean Water Act litigation, and defended ozone limits set during the previous administration.
Outside advocates always pressure new administrations to quickly reverse litigation positions, said Baker Botts LLP lawyer Jeffrey Wood, acting head of DOJ’s environment division for the first half of the Trump administration. “But for a variety of policy and legal reasons, those kinds of changes tend to be few and far between in the near term,” he said.
Confessing Error
DOJ’s steady course in litigation sometimes is just a matter of timing: Officials in charge of reviewing their predecessors’ decisions at the EPA, Interior, and other agencies either aren’t in place yet or haven’t reached a particular issue.
“There’s virtually no way for the political appointees to get up to speed on every case,” said Leopold, now at Hunton Andrews Kurth LLP. “Discussions around a change in position tend to come down only in the biggest policy issues.”
The Justice Department also weighs broader federal interests at play in litigation—sometimes leading the government to argue in favor of a prior administration’s policy in order to protect executive authority more broadly.
DOJ can confess legal error to change course in a case, but it does so sparingly—reluctant to make moves that could undermine its credibility in the courtroom, former agency lawyers say.
“When the United States takes a position in court and the Department of Justice puts its name behind it, they very much care about representing to the court that is a lawful and defensible position that one of the agencies has taken,” said Leopold, a DOJ lawyer earlier in his career. “They cannot lightly say that the law didn’t support the position that they had taken previously.”