Opinions

Don't tax Alaskans until state cuts to the bone and adopts endowment model for Permanent Fund

Our fearless leaders, propped up by pundits and questionable polls calling for a "balanced" budget approach, are preparing us for whatever they may have up their sleeves to close Alaska's $3 billion budget gap while preserving government spending. They are ignoring the obvious -- and hope we will, too.

It is like watching kids with squirt guns attacking a forest fire. None of what they are proposing -- taxes, using the Permanent Fund, cutting a little here and there -- will work for long. Addressing the deficit piecemeal in the face of competing interests -- searching for a temporary, workable tactic rather than a long-term strategy -- is a waste of time, which Alaska does not have.

Think about it: If you levy an income, sales or head tax at a certain level and nothing changes in a year -- oil prices remain low, state employees numbers stay the same, budget expenditures do not shrink -- inflation, if nothing else, likely would require a tax increase the next year, and the next, and the year after that. If you siphon off Permanent Fund earnings to support government and nothing changes, inflation would require that you simply siphon off more the next time around. The incentive to cut goes out the window. Government -- ever loathe to reduce spending -- each year will be back for more.

Two things need to happen: Government must be trimmed to the bone -- first, and before anything else. Second, Alaska must adopt a plan, perhaps a Percent of Market Value approach using the Permanent Fund as an endowment model -- like those used by large funds around the world for the past 60 years -- before the first penny in tax is levied or the first dollar is siphoned from the fund's dividends or earnings.

Fixing the state's financial mess will require added revenue, substantially less spending and a solid blueprint, not a-little-from-Column-A-a-little-from-Column-B approach to plugging budget holes. We need something solid, predictable, workable.

Surprisingly, few of those anxious to insert taxes or the Permanent Fund into our fiscal equation are talking much about a POMV, an idea that surfaces whenever Alaska finds itself awash in red ink. The notion gets center stage until oil prices climb, then it is off to the back burner.

A POMV is a great idea. It would peel off a set percentage of the Permanent Fund -- perhaps a conservative 4.5 percent -- for government operations and dividends annually. The fund generally can be expected to earn 7 percent or more, and would continue to grow and be inflation-proofed. All earnings would be funneled back into the fund and the Legislature would decide the government v. dividends split.

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As Alaska struggled with low oil prices in 2004, the House passed a POMV offered by former Gov. Frank Murkowski and endorsed by the fund's trustees to protect it -- and its dividends. Senators fearful of being tarred "Permanent Fund raiders" -- a nom de death -- balked.

The late Roger Cremo lobbied for a POMV variation. It would have channeled all state revenues and money in its principal funds into the fund, with 6 percent siphoned annually for government -- no matter the earnings -- based on the market value of the preceding three years. Lawmakers annually would have known to the penny how much money would be available. Rising oil prices buried his idea. Too bad.

Visionary Alaskans created the Alaska Permanent Fund in 1976 by constitutional amendment to protect part of Alaska's oil wealth and underwrite government when oil money dried up We misuse it, instead, for dividends. Norway annually uses up to 4 percent of its nearly $1 trillion sovereign wealth fund for government. Texas has one for public education.

A POMV would require a constitutional amendment adjusting the fund's workings and -- if we use Cremo's plan -- to direct every cent of state revenue to its corpus. The amendment should set the exact percentage to be withdrawn for government and contain pertinent details of the POMV's operation. If we are smart, we would not include dividends. Embodying an entitlement in the constitution is a lousy idea, especially in financially iffy times.

Do the math: With just a $50 billion fund, withdrawing 4.5 percent gives us $2.3 billion against a $3 billion deficit. With a dividend of $1,000 or so, Alaska still would have about $1.5 billion for government.

Lawmakers then could start talking about additional revenue, after a POMV is in place and government is trimmed to the bone, its appetite for spending controlled. Taking money from Alaskans, after all, should be the last resort, not the first.

Not all politicians see the obvious.

Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.

Paul Jenkins

Paul Jenkins is a former Associated Press reporter, managing editor of the Anchorage Times, an editor of the Voice of the Times and former editor of the Anchorage Daily Planet.

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