Politicians intent on holding office perceive higher taxes reduce the chances of reelection, and they also perceive that paying large or larger Permanent Fund dividends increases their chances. This means politicians promise too much, even though what is promised cannot be delivered. The glitter of false political promises is easily recalled by voters, and there is a tendency to disregard a politician’s failure to deliver. The glitter of the Senate Bill 21 oil tax revision kept many Alaskans from recognizing that it put Alaska on the path to poverty.
The magnitude of Alaska’s loss of cash since passage of SB21 is deeply troubling. Billions and billions and billions of dollars in savings are now gone. Add all up the cash forever lost and arguments can be made that Alaska is on a path to poverty.
After passage of SB21, Alaska began spending the approximate $18 billion from its then-primary savings accounts, the Statutory Budget Reserve and Constitutional Budget Reserve. Spending the SBR and CBR billions hid the massive loss of revenue due to SB21, its corporate welfare — huge credits and lowered oil taxes.
More recently, Alaska began spending from the Earnings Reserve Account within the Permanent Fund itself. Spending the ERA also hides the massive loss of revenue to Alaska due to SB21.
Spending from the ERA has totaled over $9 billion, with $3.4 billion in spending allocated from the Permanent Fund for current fiscal year and $6 billion spent over the previous two years. The ERA spending occurs by POMV, or percent of market value, withdrawals. If the POMV spending alone had not occurred, Alaska’s Permanent Fund would now have around $90 billion in it. Instead, the Fund has about $80 billion.
Rough approximations of Alaska’s spending from its savings accounts total about $27 billion — $18 billion from the SBR and CBR and $9 billion from the Earnings Reserve — since passage of SB21. If the $27 billion had not been spent after passage of SB21, Alaska could receive just from those monies, assuming a 4% withdrawal, more than $1 billion per year. But the $27 billion is going, going, gone forever.
The need to invade billions and billions of Alaska’s savings is not the only consequence of passage of SB21. Each Alaskan since SB21 passed has lost about $8,000 because “full” Permanent Fund dividends could not be paid, as Alaska had significantly diminished oil production revenue.
The glitter of SB21 backers’ false promises — 1,000,000 barrels of pipeline throughput per day, more employed oil workers, increased revenue to Alaska — apparently sparkles and shines for too many. However, it should now be apparent to all Alaskans that Alaska’s loss of about $27 billion and each Alaskan losing $8,000 was a consequence of something terrible — SB21. SB21 put Alaska and many Alaskans on a path to poverty.
A little Alaska history is appropriate. About a decade ago, and before SB21, there was a Senate Bipartisan Working Group. The group went on a savings spree that swelled Alaska’s SBR and CBR accounts to approximately $18 billion. There were no withdrawals from the ERA of the Permanent Fund. There were substantial capital budgets, which built much of Alaska’s infrastructure which you see today. PFDs were fully funded. Alaskans were optimistic.
Oh, what a downward change to Alaska occurred since passage of SB21. Alaska went from receiving fair revenue for our non-renewable oil resource to multiple years of net negative production revenue and inadequate/diminished revenues for all years under SB21. On top of that, PFD payments to Alaskans were slashed. On top of that, the destruction of billions and billions from savings started. And Alaska’s capital budgets have all but disappeared. Alaska suffers from 8 consecutive years of net outmigration for ages 25-64.
Alaskans sense something is wrong.
In about a year, elections will again call upon Alaskans to vote for leadership of the executive and legislative branches of our government. There will be lots of talk of glitter. There will be political promises made that will be untethered from reality.
Unless real, long-lasting and substantive solutions are advanced, Alaska will stay on the path to poverty.
Joe Paskvan is a lifelong Alaskan and retired attorney. He served in the Alaska State Senate from 2008 to 2012, including a year as co-chair of the Senate Resources committee. He lives in Fairbanks.
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