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Sorry, Alaska, but this year's PFD isn't the biggest ever

  • Author: Dermot Cole
    | Opinion
  • Updated: September 28, 2016
  • Published September 21, 2015

The news coverage of the Alaska Permanent Fund dividend announcement Monday included claims in some quarters that the amount is "the highest in Alaska history."

All things being equal, it could be true. But all things aren't equal, and it isn't.

If you plug inflation in the calculation -- and you can't provide an accurate picture without doing so -- the first dividend in 1982, $1,000, was worth more than the $2,072 this year. The same applies to the checks in 1998, 1999, 2000, 2001 and 2008.

The Bureau of Labor Statistics says $1,000 in 1982 equates to $2,470 in buying power today. Put another way, the 2015 dividend would have been worth $839 in 1982. That's what a cumulative rate of 147 percent inflation over 33 years will do to you.

In 1982, the average price for a Ford was $9,600 and the average home price was $80,000. You can no more compare the 2015 PFD with an earlier dividend than you can find an $80,000 house today equal to what you could get for that amount when Reagan was president.

What is far more important for Alaska than the inflationary erosion on dividends, is that state legislators, at the urging of banker Elmer Rasmuson and former Sen. Arliss Sturgulewski and others, changed state law in 1982 to protect the principal of the Alaska Permanent Fund by mandating the reinvestment of some earnings.

Rasmuson referred to inflation as the "thief in the night," quietly stealing percentage points off each dollar every year. The inflation-proofing decision was as pivotal a move as the creation of the fund by the 1976 constitutional amendment.

Without those continuing deposits over the years, the state would not now have a giant financial asset, one that insulates Alaska from what could otherwise be the threat of financial ruin.

Allowing the principal to grow has added to its earning power over time.

The largest inflation-adjusted dividend since the program began came in 2000, just as the dot-com boom ended. The dividend that year was $1,963, which equates to $2,717 today.

The higher checks in 1998-2001 reflected the five-year trailing average of earnings used in the dividend calculation. After those heady years, the stock market bubble burst and the fund value dropped from $26.5 billion to $23.5 billion between 2000 and 2002.

Today, the fund is about twice that size. It began the fiscal year at $52.8 billion July 1 and is now about $51.5 billion, following the late summer turmoil on world markets.

Monitoring the short-term gyrations in the total fund value are not the best way to track a fund that is supposed to be permanent, however. The Alaska Permanent Fund Corp. has long posted a daily calculation of its current value on its website, which is helpful for an up-to-the-minute snapshot of its status, although long-term performance is all that really counts.

The formula for distributing about half of the fund earnings to Alaskans in the form of dividends is based on past performance, not future results. This means that the total does not reflect current conditions, but of what has happened over the past five years.

When the fund has bad years, such as 2008-2009, the dividend drops sharply for an extended period. Conversely, when the market recovers, there will be a big move in the opposite direction. That's what began in 2014, when the dividend amount more than doubled from the preceding year and the total amount spent on dividends rose from $536 million to more than $1 billion, making it the most expensive state government program.

As happened in the late 1990s, when the stock market boomed, the earnings of the Permanent Fund have again become the largest source of state revenue. In 1998, the fund represented more than one-quarter of state income, while oil prices had dropped so low that petroleum amounted to just 19 percent of total revenue.

The balance shifted back when oil prices rose and the state raised oil taxes. The most pronounced reversal has been in the past couple of years, however, with the falling price of oil.

This year the state expects to collect roughly $1 billion more from Permanent Fund investments than from oil, excluding tax credit payments. That pattern is likely to continue because oil prices remain low and production on the North Slope continues to decline.

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.

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