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Clem Tillion: Quite a trick to blow through Alaska's savings then propose dividend cap

  • Author: Clem Tillion
  • Updated: June 26, 2016
  • Published January 24, 2016

Other than being the farthest north, west and east state, why is Alaska so different from the other 49 members of our Union? Upon becoming a state we received a 100-million-acre land grant, much like the land grant schools and some colleges received in the Lower 48. This was to help provide an income base for a large area with a small population.

Upon statehood our new Commissioner of Natural Resources Phil Holdsworth set out to select lands of value for our state. Prudhoe Bay was one of his picks.

However, the first big oil strike took place at Swanson River on the Kenai Peninsula about the same time as, but before, statehood. We were still under the old mining laws then, so the individuals who held the oil leases became millionaires. The state didn't collect enough to pave the road out to the new North Road.

A little while later, some of our young legislators, "young Turks" of both parties, started to say, "Hey, wait a minute. If it's our oil by the constitution, why shouldn't we get at least the royalty amount that a private owner would get on his own land in the Lower 48?"

It became a bitter fight, but we were able to pass a 12.5 percent royalty and a 20 percent tax to prevent the people's lease money from being used to cover the costs of this new industry.

Then came the Prudhoe Bay lease sale in 1969 that netted $900 million. With a state budget of less than $200 million, the $900 million in one lump was wealth beyond our wildest dreams.

A spending frenzy began. Some talked about putting some of this windfall in a Permanent Fund, but it was only talk until the people, by passing an initiative, forced the Legislature to lock at least 25 percent of our oil royalties in a Permanent Fund.

The state turned to banker Elmer Rasmuson for help to develop the fund. I remember him saying, "Any fund that will last must have two things. First, protection against that "thief that comes in the night, i.e., inflation." Inflation-proofing must be covered before there is any disbursement. "And second, there must be no investment or loan of any kind to an entity on which you cannot foreclose without political repercussions."

The night in 1980 that we passed the investment bill, named after Rep. Hugh Malone, we also put the Permanent Fund dividend in place. Our rationale was that because this was the people's money, like any stock, the dividend from what Gov. Jay Hammond called Alaska Inc. should be based on what our fund earned.

After inflation-proofing, we set aside half of the earnings for the people's return on their stock. On that same night, we also took $900 million out of the General Fund and placed it in the Permanent Fund as an apology for the way the Legislature had blown that first boom. For the next decade, the Legislature saved the principal in the fund and spent only tax money. But that much money seems to have burned a hole in the political pocket, and they soon started to spend some of the state's royalty and bonus income that wasn't dedicated by law to the Permanent Fund.

Now, I appeal to the Alaska people and our Legislature not to play games. A cap on the dividend is the same as a tax -- except with a tax you and I can at least claim it as a deduction on our federal income taxes. We are in a bind. If oil does not drop to $20 per barrel, I will be surprised.

Do we have a bloated labor force? Yes. But to cut back means laying off a lot of people. I think our government is too large, but we must consider what sending 30,000 people down the highway will do to our economy. Some legislators would do it, but can they stand the heat? Or is this only talk by those having to face the facts of the end of an easy run?

Is it a mark of honor to say, "Let's blow the state's savings and tell the people we are going to cap their dividend." What a trick that is! Why not tell the people that we are going to assess every dividend a tax? Every Alaskan man, woman and child will be asked to give up $1,200 to help cover our shortfall, but the dividend will remain the people's share of Permanent Fund earnings -- not a welfare payment. The tax on that share will be deductible for many, easing the pain.

Yes, we all must start paying for state government -- but how we do that makes all the difference in the future of the Permanent Fund and Alaskans' share in it.

Clem Tillion lives in Halibut Cove. He was elected to the Alaska House of Representatives seven times and served two terms in the state Senate.

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

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