When we established the structure of the Alaska Permanent Fund as tasked by Gov. Jay Hammond, the Investment Advisory Committee in 1976 chose a corporate structure. We did so because corporations are stand-alone entities responsible to their shareholders. Alaskans are the shareholders of the Alaska Permanent Fund Corp.
Accounting rules and regulations are clear. With the corporate structure in statute and by constitutional amendment, the accounting rules would be subject to nationally recognized standards and remain consistent. You only need look at the Legislature’s budget messes during the past dozen years to determine why the Alaska Permanent Fund Corp. is not and should not be just another fund for profligate state spenders.
The accounting profession is guided by the Financial Accounting Standards Board. It establishes and maintains Generally Accepted Accounting Principles, (GAAP). According to FASB.org:
“The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports.”
FASB has given a clear and consistent interpretation of dividends. Investopedia translated their accounting position into English with this quote from author Andry Blokhin:
“A cash dividend is a sum of money paid by a company to a shareholder out of its profits or reserves. It is a kind of reward to the shareholder that the company has decided to make.
Therefore, dividends are not considered to be a part of a company's cash outflow that is necessary to conduct its business operations. They are not part of the income statement and are not considered an expense.
The latest round of excuses to stop paying Alaskans their earned dividends is to claim the dividends are an expense and the largest expense. Lawmakers should read FASB, and they’ll find out that dividends are not an expense and never have been, regardless of the redefinition in the state budget.
In Alaska, the dividend policy of the Alaska Permanent Fund Corp. was established by statute, A.S. 37.13. That statute was not altered by the Legislature’s passage of Senate Bill 26, which established a percent-of-market-value amendment to the budget. That amendment established a transfer to the general fund of 5.25 percent of the value of the principle of the fund. Many Permanent Fund defenders opposed the POMV, since it cuts the umbilical cord of earnings to dividends. Without the accountability of the required calculation of 21 percent of earnings of the fund on a five-year average, the dividend is up for grabs, as well as the entire balance of the earnings reserve account each and every year. The make-up of this Legislature had been materially changed. We have retired many senior advocates of the POMV and those who would cap the dividend. Chief among them was Gov. Bill Walker, who lost re-election due to his unmet promises to protect the fund. Instead, he became the spender-in-chief. Gov. Mike Dunleavy will not make that same mistake.
Let’s look at the new governor’s commitments and priorities in the recent campaign. The race for governor was initially seen as a referendum on the dividend. If it was that, those in the Legislature got retired or received an education that could make the difference for our future dividends.
We should see Gov. Dunleavy introduce two bills, the first to restore funds withheld by the prior governor and Legislature, amounting to $3,733 per qualified Alaskan. The second would re-establish the 50/50 formula for calculating the dividend. I’d like to see clean bills that legislators can simply vote up or down. The distribution date for the “make-up dividend” should be Jan. 31, 2019. That would maximize the benefit to Alaskans and break the back of our three-year recession. Enough is enough. Small business, Bush business, and all Alaska consumers have been damaged by the prior governor and the past Legislature’s decisions to violate the existing statute. Our recession can end through these actions.
I agree with Gov. Dunleavy that the most important goal of the Alaska state government is to re-establish the trust of the people. Trust is earned and requires using Sen. Ted Stevens’ admonition, “In politics, simply give your word, then keep it." Or, as Robert Service said in the “Cremation of Sam McGee," “Now, a promise made is a debt unpaid, and the trail has its own stern code.” In 1983, we as a state committed to sharing the earnings of our savings account. We built a corporation structure and established a dividend as a means of rewarding each Alaskan for our combined frugality. Others frittered away their resource wealth. We saved and built an economic engine that is a world-famous example of wise investment policy.
Big spenders come in all shapes and sizes. Some are Republicans, some are Democrats, some independents. Some will tell you that the make-up dividend cannot be sustained. The income of the fund created the earning reserves. The money is there.
Any dividend of the fund generated by income under the FASB rules is sustainable. The Legislature already has the statutory authority to spend 50 percent of the earnings on government operations. Isn’t that enough? Unlike the POMV, if the earnings of the fund are down, the dividend is reduced as it should be.
Ultimately, the voters agreed with Gov. Dunleavy, as his election mandate certified. Let’s re-establish the people’s trust with the “make-up dividend” in January or February and return to the full dividend formula in the fall. Maybe there’s a way to do both without a constitutional amendment or constitutional convention, but right now I can’t find one. The voters were crystal clear. Just ask those who retired or were retired from legislative service.
Jim Crawford is a third-generation Alaskan entrepreneur who resides in Anchorage with his bride of 35 years, Terri. The Alaska Institute for Growth is a local think tank that studies and reports on and may sponsor projects of sustained economic growth for the Alaska economy.
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