When Alaska voters created the Permanent Fund in 1976, no one expected that one day the fund would bankroll the most expensive program in state government.
Out of long habit, we don't recognize the Permanent Fund dividend as state spending, but understanding the dimensions of Alaska's fiscal challenge means we can no longer afford that luxury.
The Legislature appropriated $1.4 billion this year for dividends, more than it appropriated for public schools.
As we await the announcement by Gov. Bill Walker Monday of the dividend amount, likely to be in the $2,000 range, it's worth recounting exactly how the fund came into existence and why. No matter how often people may say it, it's not the "Permanent Dividend Fund."
The funding that pays the dividend -- about half of the five-year average earnings of the account -- is public money, as surely as any dollar collected in oil revenue or the $2.50 tire tax.
The future of the dividend, whether it should be capped or allowed to grow, and the future of the other half of the fund's earnings, will emerge as key political questions in the months ahead.
The economic threat to Alaska posed by the oil price collapse demands the review of all options, which includes the use of some Permanent Fund earnings to fund government services.
Past debates about using earnings for government or changing the dividend calculation have often been short-circuited by those who allege the fund was created to pay dividends and nothing else.
In fact, if there was a consensus in Alaska in 1976, it had nothing to do with the idea that the state should pay money to people for living here. Instead, as banker Elmer Rasmuson, the first chairman of the Permanent Fund Corporation board put it, the fund chiefly began with "a negative goal, to place a part of the one-time oil wealth beyond the reach of day-to-day government spending."
The trans-Alaska pipeline was under construction at the time, and as Alaskans looked forward to its completion, they expected a significant boost in revenue and didn't want it wasted.
"Just as a wise and prudent family sets aside money in a savings account for the future, so should Alaska's state government set aside a rainy day fund to benefit this and future generations of Alaska," the Alaska State Chamber of Commerce said in the state voter pamphlet in 1976, making the case for the amendment's passage.
"Now is the time to ask ourselves the question: 'When the oil and gas is depleted, where will the funds to feed our giant government come from?' The answer is: the Permanent Fund."
It's true that before the 1976 vote, Gov. Jay Hammond had briefly discussed what he called the "Alaska, Inc. concept" in which Alaskans would get direct payments according to a sliding scale based on years of residency.
Hammond introduced a dividend bill after the constitutional amendment won approval, but the idea didn't gain any traction for years. Even Hammond acknowledged that it had been deemed a "far out, crackpot proposal" that attracted little attention before the oil money began piling up in Juneau.
Years of political compromises, a U.S. Supreme Court case that rejected paying increased benefits for longer-term residents and an unexpected boom in oil prices followed before the Alaska Permanent Fund dividend emerged as the most popular feature of state government.
In campaigning for the creation of the Permanent Fund, Hammond said the state needed to keep some money away from governors and legislators. The assumption by Hammond and everyone else was that the Permanent Fund would siphon enough money away that there wouldn't be room to expand government too much.
He said the fund would provide "the means by which some income can be screened from the long fingers of those in public office who find it vastly tempting to dip into your one-shot, nonrenewable resource revenues to expand government and services 'painlessly' without at the moment having to increase any of your taxes."
"Leaving all our resource dollars in the politicians' purview to spend as they see fit for bigger government, instead of socking some away in savings for the future, would be like assuming there is no need to put away some cash for rainy days," he said.
There was no campaign against creating the fund, but 38,000 people voted against it, while 75,000 voted for it.
Anchorage businessman and politician Tom Fink was among the most prominent opponents. He wrote in 1976 that the fund had been sold by Hammond and many others "on the basis that it will cut back expenditures of state government."
Fink predicted that government would grow with new taxes on Alaskans and the fund would "take money that should have been used for capital improvements and debt retirement." Government grew, but not for the reasons that Fink gave in 1976.
The vagaries of the world oil market and the Iranian revolution led to a tripling of oil prices that far exceeded the amounts anyone expected in 1976. Even with the elimination of the state income tax in 1980, revenues climbed to unbelievable levels.
The pre-vote debate about the Permanent Fund serving as a way to limit future spending faded into obscurity as Alaska embarked on the biggest spending spree in state history.
Hammond pitched the dividend as a key way to prevent the painless expansion of government. Money spent on dividends should lead to "equal reductions in those government programs which exceed what our founding fathers considered appropriate government functions," Hammond said.
But as oil revenue climbed in 1979-80, "painless" government expansion took hold anyway, and with public support. In the meantime, the Permanent Fund balance began to climb, insulated from most of the annual budget battles in Juneau.
Today, Permanent Fund earnings are the state's largest source of revenue -- far in excess of oil. We can no longer look at the earnings as a separate part of state government, divorced from all considerations about public services. Drawing on a portion of the fund each year has to be part of a sustainable solution to the oil revenue collapse.
Postponing the discussion of how the $51 billion fund and its earnings fit into the state's overall economic picture will only add to the hazard of a major economic disruption, with unknown public and private sector job losses and a decline in real estate values.
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.