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The trade-offs of a fat Permanent Fund dividend

  • Author: Tim Bradner
    | Opinion
  • Updated: December 13, 2018
  • Published December 13, 2018

The front of State Capitol in Juneau on Friday, April 17, 2015. (Marc Lester / ADN

I love my Permanent Fund dividend like any Alaskan, and the bigger the better. I’m also calculating how much I can expect next year with new Gov. Mike Dunleavy’s super-sized PFD, and what I come up with is a check for $6,708.

I call this my Dunleavy Dividend. It’s enough for a nice vacation in Europe.

That’s for past retroactive payments plus the 2019 dividend, assuming all are paid next year. Going forward, the governor’s commitment is for dividends that would wind up at about $3,000 in 2020 and $3,200 in 2021, and on up. More on how this is calculated below.

This is a lot of money. Basically it means about $2 billion per year, and up, flowing out of the treasury to Alaskans. Only part of this will get to into the economy, thanks to people like me who will spend it in Europe.

Still, this will set cash registers jingling across the state. And it will really help a lot of people with lower incomes.

During the campaign, the governor spoke of paying Alaskans the difference between the amount of the PFD paid in 2016, when Gov. Bill Walker vetoed part of it, and PFDs in 2017 and 2018, when the Legislature set the amounts, and what could have been paid according to a state statute that guides how the PFD is calculated if a payment is made.

The difference, over the three years, amounts to $2.3 billion that would have been paid under the formula in addition to the $2.4 billion actually appropriated. If this “back payment” is made, it will amount to a supplemental payment of about $3,700, according to the Office of Management and Budget calculations.

Add that to a $3,000 PFD that would be paid in 2020 in the normal dividend calculation, and we get a combined check totaling $6,700.

In coming up with these numbers I had help from some number-crunchers in the state Office of Management and Budget, before they were fired by Dunleavy. There is some estimating in this, to be sure, but the numbers are in the ballpark, I think.

Whether the statutory formula is followed, if a payment is made, is up to the Legislature. The PFD and its amount are not guaranteed, and only the Legislature, not the governor, can authorize it. It’s an appropriation, just like any other state spending program. The Legislature decides how much to spend on it.

Here’s why this is important: The more we spend on the PFD, the less money we have for public services, like schools and public safety. If we pay out an additional billion dollars a year in PFDs, it means there’s that much less for services and things like the $2 billion backlog on deferred maintenance of public buildings, or a state capital budget to repair roofs on schools or build docks and roads to foster economic development.

The choice is really that simple. Unless, of course, we raise new revenues, through taxes.

But let’s step back: However the dynamic between the PFD and public services plays out, a larger dividend is an interesting experiment in guaranteed income, which some social scientists and economists in other states, and countries, see as a solution to structural economic changes, such as loss of good-paying jobs to automation and artificial intelligence.

Alaska’s PFD payouts haven’t been large enough to allow this experiment in Alaska, though the money certainly helps people. But a super-sized dividend that keeps growing, and PFDs that could be $5,000 or more in just a few years, certainly meet the criteria for a grand experiment in guaranteed income.

It might also reach the level where it will begin attracting people to move to Alaska just to get the guaranteed income, particularly if the national economy dips. I’m not sure what the PFD amount has to be to do this, but at some point, it will happen. I’m not sure these are the kind of future Alaskans we want.

Still, PFD payouts of several billion dollars per year will greatly strengthen the economies of rural villages and small coastal communities. But there could be a dark side, if it exacerbates alcohol and drug abuse.

Most of us now recognize that Alaskans now look on the PFD as an entitlement, but it’s interesting to recall that the dividend was actually controversial when it was adopted in the early 1980s. Alaskans were very conservative then, and many opposed the state handing out checks. In fact, it narrowly passed the Legislature.

For the fact that it did pass, we can credit arm-twisting by then-Gov. Jay Hammond, who saw the PFD as a way to build public support for protecting the Permanent Fund. It has certainly done that.

However, many of us around then also remember Hammond having reservations about a government handout. He searched for alternative ideas including a state resource corporation, with citizens having shares and receiving dividends from earnings of the corporation. Former Alaska U.S. Sen. Mike Gravel put forth a similar idea.

This approach, basically modeled on Native corporations formed under the 1971 Alaska Native Claims Settlement Act, would have solved a key problem in our present PFD, which is controlling in-migration of people to get the dividend. That’s because corporate share issues can be controlled more effectively than our current PFD eligibility.

It’s too late for that now, so our grand experiment continues. Interestingly, Hammond supported a much larger dividend, but also one linked to a personal income tax. I often heard him say he wouldn’t mind if the bulk of the Fund earnings were distributed, but with revenue for public services “clawed back” from the public through an income tax.

Hammond’s notion may be in our future. If Gov. Dunleavy and the Legislature follow through with larger PFDs, given the limits of our state revenues, we may get to Hammond’s idea of a tax sooner than we think.

Tim Bradner is editor of the Alaska Legislative Digest and is the visiting Atwood Professor of Journalism at University of Alaska Anchorage this year.

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