Skip to main Content

Dividend has a better future outside of the Alaska Permanent Fund

  • Author: Sen. McGuire
  • Updated: June 26, 2016
  • Published January 28, 2016

"The budget, the budget and the budget." That's how my colleague -- Sen. Click Bishop -- outlined the Alaska Legislature's top three priories this year, and it's easy to see why. Seventy-five percent of the state's unrestricted general fund revenue comes from oil, a commodity whose price has seen a rapid drop from $105 per barrel just 19 months ago, down to below $35 per barrel today.

Thanks to an American energy renaissance powered by a revolution in fracking technology, the world is experiencing an oil glut. While this may be great news for our nation in terms of energy independence, it means that our state's budget is in the deep red to the tune of $3.5 billion or more.

To address this challenge, the Legislature and Gov. Bill Walker reduced state spending last year by nearly $1 billion. The vast majority of those cuts came as a result of draining the capital budget, a feat that can be accomplished only once. While more reductions are expected this year, and new tax proposals are on the table, Republicans, Democrats and independents all agree that cuts and taxes alone cannot solve this fiscal challenge.

What Alaska needs now are big, bold ideas. That's why I proposed Senate Bill 114. It's a long-term solution that would reform the Permanent Fund and place the state on solid financial footing while, at the same time, protect Permanent Fund dividends for future generations.

Alaska's visionaries knew our oil wouldn't last forever. That's why they created the Alaska Permanent Fund to utilize our vast natural resource wealth for the benefit of all Alaskans. SB 114 supports and strengthens their vision.

Under our current model, 25 percent of all royalties and rents from oil and gas go into the Permanent Fund, and 0.5 percent goes into the School Trust Fund. The remaining 74.5 percent of royalties is deposited into the general fund.

SB 114 would transfer that 74.5 percent into the dividend. The dividend would then be decoupled from the Permanent Fund entirely, and a floor would be put in place to ensure that Alaskans never receive a dividend less than $1,000.

To fill the budget gap, the general fund would utilize 5 percent of the total value of the Permanent Fund instead of receiving royalties from oil and gas. This would result in a net increase between $1.6 billion and $2.1 billion to the general fund, closing roughly half of the budget gap and placing the state on a sustainable path.

This plan accomplishes three important things: It protects the Permanent Fund for future generations, guarantees a dividend and cuts the deficit in half.

While there are other plans out there that would put Alaska's wealth to work, including the governor's sovereign wealth fund, I believe SB 114 strikes the best balance between addressing the fiscal challenge and protecting Permanent Fund dividends.

I won't pretend that our fiscal situation is rosy or that reforming the Alaska Permanent Fund will be an easy lift, but I will never doubt the ingenuity and spirit of optimism of the Alaskan people. We are, after all, a land of pioneers, and as Wally Hickel once noted, "All pioneers are optimists. The pessimist never gets out of town."

During challenging times, we Alaskans forget our party labels and remember that we're all in this together.

I am excited to begin this important work with my colleagues in Juneau and look forward to hearing feedback from everyday, hardworking Alaskans.

Sen. Lesil McGuire, R-Anchorage, is chair of the Senate Judiciary Committee.

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@alaskadispatch.com. Send submissions shorter than 200 words to letters@alaskadispatch.com or click here to submit via any web browser.

Comments
Sponsored