Gov. Bill Walker's plan to solve our $3.5 billion fiscal crisis repurposes Permanent Fund earnings with the unfortunate consequence that our beloved dividends will gradually disappear. Future dividends will be tied to new mineral royalties, not funded by earnings from the $50 billion Permanent Fund. When pumping oil down the trans-Alaska pipeline (now at one-quarter capacity) becomes unprofitable, royalties will vanish and so will the dividend. Sure, it may be possible to extend the demise of the dividend by developing Alaska natural gas, but Prudhoe Bay oil is nearly exhausted after 39 years, so perhaps we can figure another 40 years for gas. Does it matter that future Alaskans, say in the next century, will never receive a Permanent Fund dividend? Well, I believe Gov. Jay Hammond, Sen. Jay Kertulla, Rep. Hugh Malone, and Sen.Clem Tillion would be deeply disappointed with this eventuality.
After four years of rigorous legislative hearings and debate regarding the purpose of a Permanent Fund, Gov. Jay Hammond became convinced two major objectives must be achieved by the fund: share Prudhoe Bay's one-time oil wealth with all future Alaskans, and create a brake on uninhibited government spending. Hammond conceived of a dividend payout patterned after private sector corporate investments, a plan he called "Alaska Inc." His deep conviction was that this "permanent fund" must benefit current and future Alaskans equally and putting these resource revenues in the hands of citizens would create a check on the voracious appetite of state government. Hammond's tireless campaign for the dividend concept eventually became law. Surely 34 years of dividend payout is evidence this program was the product of the collective wisdom of our government leaders in those early days.
Government officials and civic leaders are now arguing that the original purpose of the Permanent Fund was to fund state government when the oil money runs out. There are two things wrong with that message. First, our oil is not yet gone, and second, as Hammond stated in reference to dividends on June 14, 1982, the Permanent Fund "oil wealth belonged to Alaskans themselves not the government." Hammond recognized government spending is traditionally constrained by the government's reluctance to tax its citizens. Permanent Fund earnings flowing directly into the state's general fund eliminates that check on government spending.
Historically, oil tax and royalty revenues flow along two paths into state coffers: about $117 billion has gone into the general fund for legislative appropriation, while $16 billion was channeled into the Permanent Fund. Most of the growth in the Permanent Fund (now about $50 billion) came from reinvested earnings from the fund. Amazingly, while growing itself, the Permanent Fund has simultaneously paid out $23 billion in dividends to Alaska citizens (34 dividends totaling $38,199 to each recipient). This substantial dividend payout has clearly made a huge impact on the lives of Alaska families and goes a long way toward elevating the income of the poorest in our state.
Since 1975, our state government has spent $205 billion (if you include oil revenues, federal and other funds). Compare the value to you personally of these state expenses to the $38,199 per family member paid out through PFDs. The relative importance of the dividend is immense. The famed economist Milton Friedman counseled Hammond and key legislators that the most efficient and effective means of stimulating economic growth in the state was through direct distribution of Permanent Fund wealth, i.e. the dividends. Furthermore, we must be careful about bargaining away our ownership share in Alaska Inc. because we are also trading away the interest of all future Alaskans. With Gov. Walker's plan, the Permanent Fund will no longer belong to the Alaska people, it will belong to the government.
What about our current fiscal crisis? It is important to note total state spending for fiscal year 2016 is $12.1 billion, or $16,404 per capita. Other state governments spend $6,000 or $7,000 per capita (see numerous online sources: Kaiser Foundation, Tax Policy Center, taxfoundation.org, usgovernmentspending.com). It looks like our government is twice too big.
With regard to revenues, we have been told even a combined state income tax and sales tax will raise only about $1 billion, far short of the $3.5 billion deficit. The Legislature will need time to re-evaluate every government program and policy in order to determine which programs are unjustifiable, unsustainable, or irrational given our "real" ability to pay for these programs. To allow time for an orderly downsizing of our government, we will need to loan the power of our dividends to this process. Hopefully our Legislature can devise a mechanism to facilitate this "loan" in such a way as to eventually restore the dividend program to the people, thus preserving Jay Hammond's vision for Alaska's future.
Alexander Hoke is a 40-year Alaska resident, currently engaged in property management and construction. He has also worked as a legislative policy analyst, president of a rural electric utility (GHEA) and served as a city and borough of Juneau assemblyman.
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