Alaska legislators continue to struggle to find common ground on whether to enact the biggest change in the Permanent Fund in 40 years.
The fund has grown to a value of $53 billion, becoming the largest source of state revenue. In the aftermath of the oil collapse, the earnings of the fund are going to have to be used to support Alaska government services, but how that happens remains undecided.
A lot of things people say about the fund are based on myth. It was not created as a dividend machine and while there were those who believed in the direct distribution of money to Alaskans, led by former Gov. Jay Hammond, the principal argument for creating the fund was that money needed to be set aside for the future.
I listened this week to the tapes of the floor debate in the Legislature in 1976 on the Permanent Fund constitutional amendment to see how the discussions compare with the arguments today.
First off, there is nothing in the 1976 deliberations to suggest that the current proposals contradict the original premise. The closest thing to a consensus at the time was that future legislators should be allowed to decide how to handle the earnings of the fund, providing maximum flexibility.
"The income from the Permanent Fund will be available for general appropriation by the Legislature, but the principal of the fund may not be touched," Hammond wrote.
Anchorage Democratic Rep. Clark Gruening said at the time that no matter what their party labels, legislators liked to spend money, which is why he favored a constitutional account that could not be spent. "Great amounts of wealth tempt any legislature," he said.
The discussion this year is more contentious than it was in 1976 because the stakes are so much higher. It was a hypothetical fund 40 years ago, but today the state is running a multibillion-dollar deficit that threatens the stability of the Alaska economy.
There is a parallel between the creation of the Permanent Fund and the Alaska Constitution. The Constitution was written during territorial days when Alaska was a hypothetical state. Had Alaskans developed the Constitution after statehood, it would have been less of an academic enterprise and a process more burdened with the political demands of the moment.
Likewise, the Permanent Fund debate in 1976 took place more than a year before the trans-Alaska oil pipeline went into operation, and a few years before the big money hit the state treasury after the Iranian revolution.
The specter of the $900 million, the money generated by the 1969 oil lease sale that was spent within a few years, loomed large. "The legislatures, and I've been involved in all of them since we got our hands on that dough, unfortunately, have gone overboard on Alaska investments," said Republican Sen. John Butrovich of Fairbanks, who had been in the Senate for nearly 30 years at that time.
Had Hammond and the Legislature waited until money was flowing from the North Slope, it would have been much harder or perhaps impossible to establish a formal savings program that would be allowed to grow, insulated from day-to-day politics.
Hindsight is risky, but the Permanent Fund's creation represents both brilliant foresight and lost opportunity.
The lost opportunity is that the state House pushed to save 25 percent of all oil revenue, but succumbed to pressure from the state Senate, which agreed to less than half of that amount, 25 percent of oil royalties, or about 10 percent of overall oil income.
It's easy to say now we should have saved more. Had we done so, perhaps some of the excesses of the past, particularly the 1980s building boom and the collapse that followed, would have not gotten so far out of control.
On the other hand, a smaller general fund and a larger Permanent Fund would have increased the pressure to make foolish investments, as almost anything can be sold as an income-producing investment, meeting the basic constitutional test called for in the 1976 amendment.
Hammond and House Democrats led the effort to get the constitutional amendment to create the Permanent Fund on the 1976 ballot. The House debated the measure on March 25, 1976, while the Senate took it up on May 31.
In the House debate, Republican leader Rep. Rick Urion of Anchorage argued for a ban on any investment in a "speculative market, such as the stock market."
He said the state had lost $5 million on an $18 million investment in the early 1970s. "I don't wish to see that happen again," said Urion.
Though it was hardly a sensible investment decision, the Hammond administration sold the stocks when prices were down. Many Alaskans were not comfortable with the concept of stock market risk.
Kenai Democratic Rep. Hugh Malone countered that it made no sense to limit state investments to government securities and other items with a guaranteed rate of return. "I don't think that would serve to diversify the state's economic base," he said.
In the Senate debate on the last day of May, Democratic Sen. Bill Ray of Juneau said the time was not right to create a Permanent Fund and the state should wait until it had money.
"It's like going to the bank and putting money away in the bank, locking it up and then go borrowing money to pay for your rent and your food. At this particular time the state is not in a financial position to do this," said Ray. He ended up voting for the amendment.
In the end, the only no vote in the Senate came from Republican Sen. Terry Miller of Fairbanks. The only no vote in the House was from Democratic Rep. Nels Anderson of Dillingham. Miller said that others in the Senate opposed putting the fund idea on the ballot for voter approval, but would not speak up.
"I'm trying as a courtesy to the administration to sit here and not tell why I'm the only red light up there. I suspect there'd be a lot more if we really called the chips," Miller said.
Miller had succeeded in amending the Permanent Fund measure with language that he believed would limit the ability of the state to make additional deposits to the fund beyond the constitutional requirement of 25 percent of royalties. Republican Sen. Clem Tillion of Clam Gulch and Democratic Sen. John Huber of Fairbanks both claimed that Miller had "gutted" the Permanent Fund. Huber said it twice.
"Three times is enough," Miller said. "It would have been a disaster to have passed the resolution without the amendment."
But no one in the House or the governor's office interpreted Miller's amendment as one that would prevent the state from making additional deposits to the fund. In fact, the Legislature has deposited billions beyond the constitutional requirement over the decades.
Huber said the mandate he had from people in Fairbanks was that "we piddled away the $900 million and that they believe solidly that our proprietary owner share should be stowed away for all generations. That's not the taxing share. Our reluctance to tax is the cause of the problem."
"It's taken since 1969 to get this far in spite of the people of the state of Alaska raising a hell of a hue and a cry that they want us to be financially responsible and save something for the future," said Huber.
Democratic Sen. Jay Kerttula of Palmer said he had heard from business groups and others calling for the state to save money, but not stop funding projects in their hometowns. "The scenario always went something like this: Save it all, except for us," he said.
A particularly revealing exchange occurred during one Senate Resources Committee meeting at which Democratic Sen. John Rader debated Malone and Gruening over the dueling notions of spending and saving.
"I'm not advocating that we spend all the money," said Rader, adding that he did not agree that the current generation should pay higher taxes for the benefit of future generations. "The debate is whether or not we constitutionally know so much now that this is right for future generations."
Gruening made reference to a projection that showed the Permanent Fund could hold $2.8 billion by 1985 (about half as much as it would grow to by that date) and said the fund would be generating benefits for Alaska in the short term.
"Most of us will still be around then and I think it will be a benefit. In other words, the Permanent Fund isn't something to be used after the year 2000. I think it has an immediate benefit for the state," Gruening said 40 years ago.
Dermot Cole is a columnist for the Alaska Dispatch News based in Fairbanks. 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.