As the Legislature confronts proposals to drain billions of dollars from the Permanent Fund, we must remember the original purpose of the fund and understand the risks of spending down those savings. Former Gov. Jay Hammond, allied legislators and Alaskans established the Permanent Fund by constitutional amendment in 1976 to save money and to convert Alaska’s non-renewable resources into a permanent wealth-generation device for all Alaskans.
The Permanent Fund has achieved those goals. Not only has it created tens of billions of dollars of wealth in stock market, real estate and other earnings, it has paid out dividends for generations and now is the cornerstone of our state’s budget. At a time when oil receipts no longer pay the bills, the Permanent Fund and Percent-of-Market-Value (POMV) budget structure provide a sustainable, renewable source of revenue so that our budget is no longer solely dependent on a non-renewable commodity whose price fluctuates wildly. With wise investment, the Permanent Fund has become the renewable resource that Gov. Hammond and previous generations of Alaskans envisioned.
Unfortunately, the Permanent Fund now faces a greater threat than it ever has before: the demagogic promises of Gov. Mike Dunleavy. The governor has proposed super-sized PFDs that would drain billions of dollars from the Permanent Fund itself. For the first time since the fund was established in the Alaska Constitution, Dunleavy would radically shrink the Permanent Fund’s earnings reserve with unsustainable PFDs. Draining the earnings reserve for a few years of massive PFDs would be like cashing in your Individual Retirement Account to take a vacation in Vegas.
Gov. Dunleavy’s proposal would create massive, ever-growing budget deficits, as the earnings from a smaller and smaller fund shrank accordingly. An ever-diminishing Permanent Fund earnings reserve would also shrink PFDs themselves. Although a PFD of $3,000 might seem like a great idea right now, we need to be planning for the next hundred years, not just the next few months. For every billion dollars we drain from the Permanent Fund, we lose $60 million-$70 million in revenue from investment earnings the next year -- and the next year, and each year after that, thanks to the smart investors in the Permanent Fund Corporation who earn us as much as 8% or so annually on investments. We not only lose those earnings, we also lose the compounded earnings from those investments. In short, draining the Permanent Fund would put Alaska in a fiscal death spiral, with ever-larger budget deficits and ever-smaller PFDs.
There are two simple ways of establishing a sustainable PFD that protects the Permanent Fund itself and the state’s fiscal stability. First, align the size of the PFD with the surplus from the state’s budget. Sen. Chris Birch has courageously laid out the fiscal trade-offs associated with the PFD, the state operating budget and enhanced revenues. The other way to ensure a sustainable PFD is with enhanced revenue, which would allow for a larger dividend. Sen. Wielechowski offered amendments to this end during budget deliberations.
Whether you support a more modest PFD and similarly limited state revenue, or higher state revenue and a larger PFD, we should all come together around the principle of protecting the Permanent Fund itself. Personally, I would support additional revenue for a larger but sustainable PFD. However, at a time when there is not consensus around new revenue, we must not allow the governor to drain the Permanent Fund’s earnings reserve.
Gov. Hammond and Alaska voters were right when they put the Permanent Fund in our constitution. This is our savings account -- for current and future generations. We should protect the Permanent Fund through investment earnings and the POMV, not squander it with a short-sighted payout that steals from our children and grandchildren.
Zack Fields, D-Anchorage, represents Downtown, South Addition, Fairview, Government Hill and Eastridge in the Alaska House of Representatives.
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(at)adn.com. Send submissions shorter than 200 words to email@example.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.