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Dividend is the strongest protection for the Alaska Permanent Fund

The $52 billion Permanent Fund is Alaska's biggest asset, and relative to our population it is one of the largest in the world -- representing nearly $300,000 for a family of four. It dwarfs the value of our other abundant natural resources of fish, minerals and timber, and unlike our depleting stock of petroleum, it is sustainable. Properly managed it can generate $2.5 billion each year to support public services and pay a dividend. Properly nurtured, it can continue to grow and could someday exceed $100 billion.

So as we develop a game plan for addressing the state fiscal crisis, our first concern should be protecting the Permanent Fund. If we lose it Alaska will be a much poorer state with limited options for facing the challenges of the future.

Because the contributed balance of the fund, currently about $39 billion, is constitutionally protected, Alaskans may think its future is secure. But as money becomes scarce, more eyes will turn to this huge pot of money as a source to fund schemes designed to develop the economy.

History shows there is no shortage of these schemes, some supported by well-meaning Alaskans and others by smooth-talking Outsiders looking to make a quick billion. Think Delta Barley, Pt. MacKenzie Dairy, Anchorage Seafood or pick your own favorite.

As petroleum production declines the urgency to keep the economy growing by investing in these schemes will only increase. And as revenues decline the urgency to invest in government operating programs that purport to help the economy grow will also increase. Both will be characterized as "investments in the future" and a way to "put our assets to work in Alaska."

But if history is any guide, most of these schemes and projects will not be able to pass a market test of generating a return comparable to the return we already enjoy with the Permanent Fund.

This of course will not stop the supporters from advocating for their schemes, and as history also shows, it is extremely difficult to say no to these types of projects when money is available. Alberta went down this "investment path" with their Heritage Fund in the 1980s, and squandered many billions before adopting an investment policy more in line with the Alaska Permanent Fund.

There are many ways to access the billions in the Permanent Fund without amending the constitution. The easiest is to spend the earnings reserve, cash out the unrealized gains that are not constitutionally protected and eliminate inflation proofing. This would immediately free up $14 billion. And without inflation proofing, in 10 years the fund would lose 40 percent of its value in today's dollars.

Clever accounting and lawyering could gain access to the constitutionally protected corpus of the fund in a number of ways. Some of the more obvious would be for the state to borrow against the corpus (an idea recently floated), or to expand the classes of assets that the fund is allowed to invest in.

How can we protect the Permanent Fund from these attacks? Keep the dividend paid directly out of fund earnings rather than restructuring it to be paid out of petroleum royalties that have no connection to the Permanent Fund.

The dividend, as Gov. Jay Hammond intended, has been the Permanent Fund's first line of defense for the last 35 years. It has created a constituency making it political suicide to go after its billions for dubious purposes. We may need to change the share of fund earnings paid as the dividend, but if we decouple the dividend from the fund, who and what will protect it?

Scott Goldsmith is former director of the Institute of Social and Economic Research at the University of Alaska Anchorage and a longtime Alaska economist.

John Havelock is a former Alaska attorney general, professor of justice at UAA and an Alaska Dispatch News columnist.

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.

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