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Who are the real Permanent Fund defenders?

  • Author: Tim Bradner
    | Opinion
  • Updated: September 9, 2020
  • Published September 9, 2020

Senate Majority members, from left, Bert Stedman of Sitka, Natasha von Imhof of Anchorage, Senate President Cathy Giessel of Anchorage and John Coghill of Fairbanks speak with reporters following a failed attempt by the Alaska Legislature to override Gov. Mike Dunleavy's budget vetoes. The vote failed on a 37-1 vote; 45 votes were needed for an override, and about a third of lawmakers were absent from Juneau, choosing instead to meet in Wasilla. (Michael Penn/The Juneau Empire via AP)

Our grandchildren, two or three decades out, will look back at 2020 as the year the dissipation of the Alaska Permanent Fund began. More precisely, they will target Aug. 18, the day of Alaska’s primary election.

An outrageous statement? Yes indeed. Let me explain.

A group of state legislators promising a large Permanent Fund dividend, or PFD, defeated a group of incumbent legislators who had resisted the larger PFD, arguing it was unaffordable in the current economy.

This was mind-bending. Those promising a larger dividend, and cynical me sees this as a ploy to pander for votes, were so-called conservative Republicans.

Good conservatives pushing for a larger handout of government money? I thought I’d never see the day.

The arguments pro and con the “full” PFD quickly get complicated, but what it really boils down to is, “vote for me and I’ll give you a larger check.”

That’s what happened in ancient Rome, when the emperors handed out free food and entertained the masses with gladiator fights to get public support. Look what happened to Rome.

Let’s look at what happened here. The arguments for the bigger-check crowd boil down to a formula in a state statute passed in the early 1980s, when the state was rolling in oil money. The statute was simply a guide as to how the PFD was to be calculated, the assumption at the time being that the oil bonanza would go on forever.

It didn’t. Legally, according to our state Supreme Court, the PFD is just another government program. And according to our state Constitution, only the Legislature can appropriate funds including the PFD. In doing that, the Legislature must weigh the money spent on for dividends against other public needs like schools and state troopers.

Since 2016, we’ve been in a fiscal mess with oil revenues plummeting and only withdrawals from the Constitutional Budget Reserve, a state savings account, preventing an economic collapse by softening the budget reduction with a “stairstep-down” of spending.

Through those years, Gov. Bill Walker and legislators decided we just couldn’t afford the PFD funded according to the old statute. A dividend was paid, but at an amount that seemed affordable, legislators reasoned.

That didn’t sit well with a lot of people, and Walker was defeated in 2018 by now-Gov. Mike Dunleavy, who campaigned on a promise of a higher dividend.

The state’s finances meanwhile continued to deteriorate, and Dunleavy’s campaign pledge was thwarted by experienced legislators who felt the high PFD was even more unaffordable. They paid the price on Aug. 18.

Unless an asteroid hits, we can now assume with confidence that the higher-dividend crowd will control the Legislature beginning in January. They will have the blessing of Gov. Dunleavy, who sits in the governor’s chair for two more years.

The implications of this are bad. The outcome most likely is a gradual spending-down of the earnings reserve of the Permanent Fund, which can legally be spent but which is really a big part of the Fund.

An alternative, if that doesn’t happen, is funding several hundred million dollars for the super-PFD by cutting spending — for example, to schools or the university.

The most likely course, given political realities, is just taking the money from the Fund, or the part of it that can be spent, the earnings reserve. That will start the gradual unwinding of the Fund, which has been the single largest success Alaskans have achieved with their oil windfall.

I often hear the argument that the PFD is simply the “people’s share” of the oil windfall. That’s a way of looking at it, and it does accomplish the late Gov. Jay Hamond’s intention that a “people’s” stake in the windfall will prevent greedy politicians from raiding it.

This seems to argue that the people have a direct royalty stake in the oil. But in terms of law, the Alaska Statehood Act passed by Congress in 1959 grants the state its land entitlement (and source of the oil) but forbids the state from selling or transferring mineral rights to third parties. The state holds the mineral rights on behalf of the people, therefore, and only the Legislature can appropriate revenues from natural resource earnings, which it does.

What this boils down to is that under the constitution the Legislature can, through its annual appropriation power, give the people a direct payment, but there’s no guarantee — this is a decision the Legislature must make every year. However, we now have a group of newly elected legislators pledged to make the high payments. They can certainly do that.

The PFD does help a lot of people. For many, it helps pay bills and college tuitions. But many affluent Alaskans don’t really need the dividend. Their dividends are often spent for vacations out of state or just saved.

Finally, big-dividend advocates say it’s needed to stimulate the economy. It’s worth considering that. But 15% to 20% of the PFD typically goes right to Uncle Sam in federal taxes. A lot of it is spent out of state, for those vacations.

In fact, economists have struggled to find any evidence, any data, for an economic bounce from the PFDs. No doubt it’s there, but how significant it is just a guess. However, one bit if hard data is that marijuana sales typically go up in the fall at PFD time, as evidenced by state marijuana tax collections.

The supreme irony of all this is that for decades, since the Permanent Fund was created in 1976, a key state policy that all politicians agreed on was that the Fund should be protected and allowed to grow over time.

Now we’ll step away from that if we adopt a policy — the “full” PFD — when we can’t afford it. This will lead to gradual erosion of the Fund. It could also take away money that could be used to “inflation-proof” the Fund, further eroding it.

Given this, I have a label for those newly elected with the high-dividend pledge: Permanent Fund Raiders.

Those they defeated on Aug 18, who were committed to a more cautious and financially prudent course — I now call those people Permanent Fund Defenders.

Tim Bradner is copublisher of the Alaska Economic Report and Alaska Legislative Digest.

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