On the heels of Gov. Bill Walker's three-day "Building a Sustainable Future" shindig in Fairbanks to hash out details of Alaska's fiscal problems and possible solutions, many of us are wondering when Alaskans will get around to connecting the dots.
As some attendees pointed out, most of those at the gathering were older, politically involved Alaskans or members of Walker's transition team or kibitzers representing government or education interests. They spent, if the press got it right, much time on taxes -- the left calls them "revenue options" -- to close Alaska's budget gap.
Alaska is awash in red ink because the vast majority of its unrestricted spending and about half of its economy are linked to oil prices and North Slope production. A worldwide oil glut gutted prices and production is sagging. The facts are painful: State government takes in $2 billion from oil. The budget tops $5 billion. We are perhaps $3.5 billion short. Maybe it will get better in a few years. It likely will not.
Taxes may seem an easy solution, but are they the best answer? Despite the political left's fascination with them, taxes are a lousy idea. Progressive income taxes punish those who work and amount to a pay cut. Sales taxes, or consumption taxes, are -- the left says -- not progressive, unfairly burdening the economically disadvantaged. Adding oil taxes increases industry overhead, threatening growth and production, which we need desperately. None of that is good and taxes only increase as government grows -- and the levies seldom go away. Liberals have been moaning about the repeal of Alaska's income tax since it pried loose its last penny 35 years ago.
What we need is a painless way to close the budget gap without crippling the economy; a way to level the natural resources-driven peaks and valleys in Alaska's economy -- and there is such a way.
Alaskans had the vision to constitutionally establish in 1976 the Alaska Permanent Fund, a sovereign wealth fund of sorts aimed at protecting some of Alaska's oil wealth to pay for government in the future.
The solution to our problem could not be plainer. We need a Percent of Market Value endowment plan that turns the $55 billion Alaska Permanent Fund into an economic engine producing investment returns ad infinitum to run government. Norway does it. Texas uses such a fund for public education. Similar funds are flourishing around the world and have been for more than 60 years.
Under such a plan, the fund could be managed to produce, say, an 8 percent return with perhaps 5 percent being taken out, after inflation-proofing, to run government and pay dividends, with the rest reinvested. During the last economic dustup caused by dwindling oil revenue, the POMV idea was endorsed by the fund's trustees as a way to protect it and Alaskans' precious dividends -- which, without such a plan, are likely to bite the dust, and soon.
There are variations. The late Roger Cremo believed all state revenues and money in its principal funds should be socked away in the account and that 6 percent be pulled out annually for government, no matter the earnings, which should be calculated from the market value of the preceding three years. That way, he said in legislative testimony, "the Legislature would know how much money, to the penny, would be available for expenditure the following fiscal year."
Alaska should have listened. Of course, rising oil prices sidelined not only his plan, but any and all others. He was spot on -- and now is the time to act.
The best way would be a constitutional amendment changing how the Permanent Fund works and directing every penny of state revenue to its corpus, setting in stone the percentage that could be withdrawn for government and pertinent details of its operation. (In Norway, 4 percent can be withdrawn annually for government, but that fund is huge, approaching $1 trillion.) Also, establishing details of fund operations in the amendment itself would head off future chicanery. If we are smart, we would not include dividends in the constitutional change. Codifying them only creates an entitlement.
Would a POMV be enough? Will taxes be necessary anyway? That is a fight for later, after more cutting; we need change now.
There will be wails and gnashing of teeth from the chronically myopic who believe any attempt to use the fund for its intended purpose is a "raid" on their God-given dividends. We no longer can listen to them.
We have an opportunity to connect the dots, one we dare not ignore.
Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.