‘Where’s the crisis?’

“Where’s the crisis?” That’s the question we heard at a House Finance Committee town hall in Fairbanks in March, and the question sticks in my head.

The guy looked at our budget chart and observed that if all the items were funded to a decent level, there would be enough left over so that a family of four would receive $4,000 in PFDs. We can fund our basic services, including K-12 education, the university, public safety, public health, ferries, Pioneer Homes, etc., and still have enough left over to give every man, woman and child $1,000 apiece in free money. Any other state would be envious.

Don’t forget, we have no broad-based tax in Alaska, such as an income or sales tax.

So, where’s the crisis?

The crisis is that we have an outdated PFD formula that needs revision. The formula is based on Permanent Fund investment earnings, and it worked well when we had enough oil revenue to pay for the state budget. But that changed a few years ago, when oil prices and production reached levels that left the state searching for funds. We ended up depleting our savings account and finally last year we passed a bill (Senate Bill 26) that, for the first time, allowed us to take a structured draw from the Permanent Fund (5.25% of the total value of the fund) and use it to fund our state services. This year, that amount is almost $3 billion. Our oil revenue for the same period is about $2 billion, which means the Permanent Fund structured draw brings in more money than oil. This fact alone is a major paradigm shift. For perspective, in 2012, oil brought in about $8 billion. Also, SB 26 passed with split support meaning not all Democrats or Republicans supported it, similar to the $3,000 PFD debate now. The divide is not along party lines.

The PFD amount has been calculated with a formula using the five-year average of earnings of the fund. This year that amount would be $3,000, which would be the largest amount ever paid out as a PFD. Some may remember when Gov. Sarah Palin gave everyone a bonus check of $1,200 to augment their PFD, (which made the total more than $3,000) at a time of high oil prices when many Alaskans were having a hard time paying their heating bills. By the way, the following year, when this bonus check wasn’t issued, nobody claimed it was a “regressive tax.”

Right now, the state can’t pay a $3,000 PFD on a regular basis. It’s simply not sustainable. In the past, the Ppermanent Fund earnings paid the PFD and oil revenues funded the government. The system worked pretty well. Alaskans had a fully funded budget and everyone got a PFD check, with the average for the past 37 years being approximately $1100.


I feel the PFD check should be linked more closely to our main resource, oil, than to Wall Street. Most people think it’s an “oil check” anyways.

My bill, House Bill 132, uses annual oil revenue earnings for calculating the PFD check instead of permanent fund earnings. This will accomplish several things. When oil prices or production are high, the dividend check will be higher, which will help offset higher heat and electric costs. If oil prices or production should drop in the future, which is very possible, the state won’t be obligated to pay a large PFD that it can’t afford. It will also increase our awareness of oil prices, production and taxes since it is our main resource. This will link the PFD check to our sub-surface mineral rights, which was the original intent in the first place. If we have a good year we get a higher check and if we have a bad year we get a smaller check, much like a fortune 500 company pays it’s shareholders dividends.

I know many people support a “full” PFD, but many people support “full” services and have stated they’d take a lower PFD in order to not lose those services. I also know Gov. Mike Dunleavy got elected and had a full PFD as part of his campaign. But I’d suggest that even though he won the election, it may have been partly due to the distraction of a three-way race and many issues weren’t fully vetted during the campaign. I suggest a full PFD isn’t the No. 1 issue for the majority of Alaskans, as crazy as that sounds.

Many politicians feel the need to support a “full” PFD to get re-elected, but it really isn’t fiscally responsible. We need to do what’s best for the state in the long run and not only think about the next election cycle.

It’s time to take care of the current PFD crisis and move forward with a sustainable responsible budget, now and into the long-term future.

Adam Wool, D-Fairbanks, is a member of the Alaska House of Representatives.

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