Skip to main Content
Opinions

Permanent Fund dividend: What we gain, what we lose

  • Author: Roger Marks
    | Opinion
  • Updated: January 22
  • Published January 20

Someone once observed, " … since most Alaskans view the (Permanent Fund) dividend as a distribution of their wealth, they see no reason to study it as a phenomenon, and actually look on any attempt to study the dividend as a potential threat to its existence." Nevertheless, it might be useful to ask what trade-offs the dividend represents.

The Alaska Legislature has been trying to balance the budget. There is consensus that some fund earnings should finance government. The issue is what portion of earnings should go to dividends. Currently the dividend accounts for $700 million annually (half the 2015 amount), or 15 percent of the budget. Every dollar of dividends will mean less of something else, or raising additional revenue.

The dividend, as envisioned by the late Gov. Jay Hammond and others, was intended to a) share public wealth directly with citizens, b) create a constituency to defend the fund, and c) prevent politicians from readily spending earnings.

To that end the dividend has been successful. Through November 2017, $24 billion has been distributed, and there is $64 billion in the fund. The money has been used for savings and spending, added to income and job growth, and reduced poverty.

Would the fund have flourished had less earnings been paid out in dividends? And what if dividends had never been paid? Had the $24 billion been kept in the fund, earning the same return, there would now be an estimated $86 billion more in the fund, a total of $150 billion.[5]

With 5 percent annual earnings, the fund could generate $7.5 billion for state expenditures, $3.2 billion more than the current budget, with no need for any other revenues. There would be no budget problem.

The recent reduction of dividends, and the possible introduction of taxes due in part to fund diminishment by past dividends, represents a front-end loading of the inter-generational distribution of the wealth. Past Alaskans received a greater benefit from the fund than future ones.

Of the scores of sovereign wealth funds worldwide, only Alaska pays a dividend. Yet without a dividend many of these other funds have prospered. Norway's fund has a trillion dollars. It has a simple rule: no investing in Norway.

Some funds, where either there were no rigorous deposits, the principal was available for spending, or earnings were used continually for internal purposes, have struggled.

Jay Hammond, shown near his Lake Clark home June 5, 1985, was a bush pilot and hunting guide who served two terms as Alaska’s governor and helped create the Alaska Permanent Fund. (Erik Hill / Anchorage Daily News)

In establishing the dividend Hammond wanted "to pit collective greed against selective greed," the former being personal interests, the latter public interests, where not all Alaskans benefit equally from state spending, and some waste is inevitable. Given the large budget surpluses of 1982, or unlimited household wants, did "selective greed" ever have a chance?

Hammond believed citizens had the right to share directly in public wealth, and that individuals could benefit more deciding themselves how to use the money. At the same time government achieves the goals of an organized community, the distribution system for many of society's needs such as schools, roads, justice and health systems.

The government earned the capital for the dividend. Public spending could nurture its own constituencies to protect the fund, and grow the economy, as well.

ISER found, relative to other fiscal options, that cutting the dividend would have a greater short-run impact on income. (Their charge was only to look at the short-term.) But they also concluded:

"Choices Alaskans make about closing the budget deficit would affect Alaska's economy and society in many important ways beyond the short-term … We should base our fiscal choices not only on their short-term effects but also on what they might mean for Alaska … over time."

While all citizens realize their ownership share of the resources through taxes and royalties, the dividend is especially vital for low-income residents.

Alaska's Constitution begins with " … all persons have corresponding obligations to the people and to the State." Median family income in Alaska was $83,000 in 2014. Does everyone need the dividend?

In Alaska, the wealthiest 5 percent of households have incomes nearly 11 times higher than the poorest 20 percent. The poverty rate is 9 percent and rising. With poverty comes poorer health, less education and work, and engagement in riskier behavior, including crime. Income inequality gives the wealthier control over others and undermines the fairness of economic and political institutions.

Beyond hard work, much of prosperity should properly be attributed to chance: one's parents, DNA, who one meets, and the outcome of random and subjective processes. As the writer Michael Lewis said:

"Recognize that if you have had success, you have also had luck — and with luck comes obligation. You owe a debt, and not just to your Gods. You owe a debt to the unlucky."

Roger Marks is an economist in private practice in Anchorage. He formerly served as a petroleum economist with the Tax Division in the Alaska Department of Revenue. His article, "The Opportunity Costs of the Alaska Permanent Fund Dividend," was published in the September 2017 Journal of Economics and Public Finance.

The views expressed here are the writer's and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary@adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser.

Local news matters.

Support independent, local journalism in Alaska.

Comments