It's time to move ahead with a workable plan to help finance a portion of Alaska state government. That plan changes the Permanent Fund to an endowment model known as Percent of Market Value (POMV).
In 2004 my administration convened a Conference of Alaskans in Fairbanks, moderated by Brian Rogers, to discuss alternative plans for financing state services. At that time oil was $25 per barrel and the Department of Revenue predicted the price would drop to $18 per barrel. We had only $2 billion in the Constitutional Budget Reserve (CBR). To make ends meet and to husband the resources of the CBR we needed to make significant cuts in state services. Then, as now, every cut had a constituency. For example, many still recall the uproar that was caused by eliminating the longevity bonus.
The state is in worse shape now than it was then. Our operating budget then was around $2.4 billion, not the nearly $6 billion it is today. We had twice the flow of oil that the state currently has. There is today little hope that the price of oil will rise sufficiently to offset the deficit budgets we can expect going forward before our CBR savings run out, no matter how much the Legislature and governor cut. As Wally Hickel once pointed out, we cannot cut our way to prosperity.
Yet, as we have seen, after 2004-2006, the cost of state government has more than doubled in the last decade. But the volume of our revenue source has declined by more than half of what it was a few years ago. That fact sets the stage for a fiscal crisis that will be felt by every Alaskan unless action is taken now.
Here's how it can work:
In 2004 the Conference of Alaskans recommended passage of a constitutional amendment that authorized converting the Permanent Fund to an endowment model called POMV, which is similar to other large funds around the world. At that time, we assumed that the Permanent Fund would earn 8 percent per year on average. The concept was to access 5 percent of the value of the Permanent Fund and use half of that amount to pay for education and half to pay for the dividend. The remaining 3 percent would remain in the fund to protect its earning power against inflation.
We asked the Legislature for authority to convert the Permanent Fund to a POMV endowment plan. The House agreed, but the Senate did not. So we have no POMV today. If the Senate had approved the POMV plan in 2004, we might have had as much as $2.5 billion to fund education in the FY 2016 budget and $2.5 billion to distribute in the Permanent Fund dividend for all Alaskans.
The reason the Senate said "no" was political -- to avoid the label of "Permanent Fund Raiders" in 2006, an election year. That same problem will exist next year, also an election year. To avoid this I strongly suggest that the governor present a revised endowment plan at a special session this year -- the sooner the better. We cannot afford to wait.
The new endowment plan should balance the amount paid as a dividend with the need to fund state services.
I recognize that it will be hard to get the POMV endowment through a special session this year but, it will likely be impossible in an election year. To do it the following year will be too late -- we'll have depleted the CBR by then.
Alaskans have to make the choice now or face the consequences. The POMV endowment will work as an important building block in securing Alaska's future, and our Legislature should pass it in a special session this year.
Frank Murkowski is former governor of Alaska and former U.S. senator. He is also a former president of Alaska National Bank and state commissioner of economic development.
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