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Yes, put the dividend in the Alaska Constitution

  • Author: Charles Wohlforth
    | Opinion
  • Updated: December 2, 2017
  • Published August 28, 2017

PFD Technician Shilo Franklin, left, helps people process their Permanent Fund Dividend applications at the downtown Anchorage PFD office on Thursday, March 31, 2016. (Loren Holmes / Alaska Dispatch News)

The fate of the Alaska Permanent Fund dividend remains a stubborn barrier to solving the state's fiscal crisis. But there is a compromise, parts of which were worked out a decade ago, that would fairly and finally resolve the problem.

This idea might even assuage Sen. Bill Wielechowski, D-Anchorage, and his team of retired warhorses, former Sens. Clem Tillion and Rick Halford, who lost their defense of the old dividend formula in the Alaska Supreme Court last week.

The compromise first emerged in 2004, when Gov. Frank Murkowski convened 55 Alaskans in Fairbanks to come up with a solution to a fiscal gap caused by low oil prices. He hoped for support to spend the fund's earnings.

After hearing a dramatic speech from the dividend's father, Gov. Jay Hammond, the Conference of Alaskans rebelled against Murkowski and recommended a novel plan.

In its letter to the Legislature, the conference said a "reasonable" dividend should be enshrined in the Alaska Constitution, making it safe from change without a public vote. The balance of the fund's earnings could support government services.

Polls showed the plan was popular, but legislators didn't want to give up power to voters. Then a rise in oil prices removed urgency from the issue.

The 2004 dividend was $919. Alaska's predicament today would be far easier if the Legislature had passed the conference plan.

But it's not too late. While the state continues to spend billions from finite savings, the two-year fight in Juneau has answered some key questions.

This year's budget recognized the Legislature cannot cut much more. Effectively, leaders reached a decision on the right level of spending.

Lawmakers also ended cash oil tax credits that threatened to drain future treasuries. Democrats wanted higher oil taxes as well, but that was deferred and now seems unlikely. That's a decision, too.

The Legislature and governor also came to a messy compromise on the size of the dividend. The operating budget set it at $1,100, about half what it would have been under the old formula based on past fund earnings.

By lowering the dividend, the state saved more cash than it could have raised in any likely income or sales tax. That was a big deal.

But the ad hoc nature of the amount makes the dividend vulnerable. Dividend advocates can rightly ask what will keep the Legislature from taking more of the dividend as state savings run out.

The situation is unstable politically, too.

The lawsuit failed, but defenders of the dividend have other weapons, including a potential petition initiative and campaign attacks on incumbents.

The size of the dividend promises to become a perennial political football. The decision on how much to pay will always be important enough to decide elections and shape legislative sessions. That's a formula for endless partisanship and pandering.

Gov. Bill Walker is lucky the Legislature this year ratified his veto of half of last year's dividend. But the issue remains a potent hazard for him. An early opponent, Sen. Mike Dunleavy, has already taken a populist pose as a dividend champion.

A variable dividend also aids opponents of an income tax. They contend that affluent families shouldn't have to pay a tax while the state gives away money through a dividend. As long as legislators control the size of the dividend, that argument remains potent.

Byron Mallott, now lieutenant governor, recognized this problem when he advocated in 2004 putting the dividend in the Alaska Constitution. As he argued then, certainty in the dividend would create space to maneuver the other pieces of a fiscal solution.

The gap is a giant puzzle. We will know the pieces to a solution fit when everyone contributes.

Some have already given. Recipients of services endured budget cuts. Oil companies lost tax credits. Maybe those pieces should have been larger, but at least decisions were made.

Low-income earners lost the most. At $1,000 a head, the dividend reduction hit hard at poor and subsistence families.

But that doesn't mean the original dividend formula was correct.

History shows that over time, the Permanent Fund grows faster than inflation. Under the old formula, the dividend grew faster, too. Eventually it would grow too large. It was already close.

At a reasonable amount, the dividend does a lot of good for Alaskans and for our culture of equality. But above its 2015 record payment of $2,072, the dividend could hurt Alaska, luring poor families north and discouraging work.

A dividend of $1,100, close to the historic average, seems about right. It will do the good we need but is not enough to distort behavior and the economy.

A constitutional amendment should set the dividend at that amount permanently with a cost-of-living adjustment to keep it from eroding due to inflation. There would be several benefits to such an amendment.

It would let the public cast a binding vote. Constitutional amendments require two-thirds approval by each house of the Legislature and a majority of the voters at a general election, coming up in 2018.

It would allow increasing fund profits to accrue to savings or public spending. As the fund's growth outstrips inflation, the portion left over after dividends would become ever larger.

It would remove the dividend from the fiscal debate. With the amount of the dividend set, legislators' choice would be between taxes and spending, not taxes and dividends.

It would protect legislators and a governor who made tough choices and deserve some political cover from the cheap shots already headed their way in the next election.

Finally, it would resolve a big piece of Alaska's painful adjustment to a new economy and allow us to focus on whatever our future will be rather than the size of our annual freebie.

Would voters approve such an amendment?

I think so. The vote would appeal both to our self-interest and our better selves.

For ourselves, the amendment would guarantee the dividend will always remain.

For our community, it would help provide a financial future for Alaska as a state.

The views expressed here are the writer's and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)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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