The amount of the Permanent Fund Dividend – $3,000 for 2019 or something less – was again a big wrinkle as the Legislature faced adjournment.
It has always been disappointing to me that the debate is over how big the dividend, or PFD, will be, and how much free cash the state will hand out, instead of finding solutions to problems in health care or education.
The dividend is often defended as a way to stabilize the state’s economy in a time of recession. But surprisingly, we have no clue as to how people really spend this money, and researchers have been unable to find much of a measurable economic bump from the PFD payments.
That’s surprising because the amount being appropriated for the dividends, several hundreds of millions of dollars yearly, is equal to the payrolls of several industries in the state. One would think this would show up in employment data. But it hasn’t.
Earlier this spring, state labor economists told the Senate Finance Committee they haven’t been able to see any impact on wage and salary employment, even for the one year in which an unusually large PFD was paid: the $3,000-plus double dividend approved by former Gov. Sarah Palin in 2008, a time when oil revenues were high.
Others have found similar results, at least when they examine state job data, the best tool we have to measure changes in the economy. Recent work by the University of Alaska Anchorage’s Institute of Social and Economic Research did find a very small increase in hours worked by men that the researchers believe can be attributed to the PFD. However, they also found a small decrease in hours being worked by women, also believed to be linked to the dividend. The overall effect was the women canceling out the men.
There are other ways of measuring possible effects — for example, sales tax collections in municipalities that have those, but these have been have been blind alleys, too. Researchers tried to find upticks in retail sales tax data that could be linked to PFDs, even for types of retail that are purely discretionary, like liquor and marijuana. This is a surprise, given all the retail sale specials when the dividend checks go out. One more disturbing effect ISER has documented is a 10% increase in substance abuse reports in the months after PFD payments.
State troopers have told Rep. Mark Neuman, a Republican legislator from Big Lake, that they believe anxieties over jobs and the economy helps fuel domestic abuse. Neuman believes a higher PFD would help this, and the ISER data does show property crime falling 10 percent immediately after PFD checks go out.
Many of the PFD benefits are intangible and in things that can’t be measured, like the troopers’ belief of a connection between crime and economic anxiety. Ed King, an economist in the state Office of Management and Budget, believes the simple psychological effect of the PFDs — feelings of happiness when checks arrive — have an unmeasurable but positive economic effect, particularly in a down economy. Bankers have told me they see a reduction in past-due consumer loans, such as for autos, when PFDs roll out. Earlier work by ISER showed that PFDs lift many low-income Alaskans above the poverty level. That has broad social benefits.
We know a lot of PFD money is spent catching up on bills, buying clothes for school and big-ticket retail items like snowmachines, and more and more goes to charity every year through the popular “Pick.Click.Give” program, where Alaskans donate to charities through their PFD application. A lot goes for vacations out of state — that’s King’s “happiness effect” — and a lot is saved for college tuition, too.
There’s no way to estimate how much of the dividend is saved for college. Gavin Triplett, a recently-graduated University of Alaska economics student, could find no significant correlation between PFDs over several years and enrollment at UAA, even in years of high dividends. Triplett did say a more thorough investigation may yield results, however, such as among students from lower-income families.
Despite all this, we also know that one of PFD’s biggest benefits is creating a safeguard for the Permanent Fund itself. If citizens sense that their dividends are threatened by ambitious projects proposed by politicians to use the Permanent Fund for financing, woe be to those politicians. For that reason, it is important to preserve the PFD and, most important, the link between the size of the PFD and the fund’s financial performance.
All in all, the dividend is a good thing. There’s nothing quite like it anywhere in the world, and former Gov. Jay Hammond, who is largely responsible for the PFD, should be given credit for giving ordinary Alaskans a direct stake in the benefits of natural resource development.
I would say, however, that Hammond would probably be dismayed at how the dividends has seemed to paralyze Alaska’ politics. He supported a big dividend, I often heard him say, but he coupled that with the need for a personal income tax to “claw back,” as he put it, some of the dividend money to support public services.
It’s not too late to heed Hammond’s advice.
Tim Bradner is co-publisher of the Alaska Legislative Digest and Alaska Economic Report.
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