Rewind nine months: It’s July 2021. As the state’s savings accounts run dry, Alaska legislators and Gov. Mike Dunleavy are wracking their brains, trying to close a 2022 budget gap estimated as high as $2.3 billion. Even with fuel prices rising, the revenue shortfall will force hard decisions about state services and spending money from Permanent Fund earnings, the source of 70% of state revenue. If only there were an oil boom, so many of them think. It would make budgeting easier, and we wouldn’t squander it.
Back in the present, that oil boom — of sorts — has arrived, in the form of one black swan event piled on another: Russia’s invasion of Ukraine as the world tries to emerge from the COVID-19 pandemic. Last week, oil was trading above $100 per barrel, the rarefied territory Alaska hasn’t seen since the fall of 2014, when prices started to crater and our latest price slump, and resulting budget crunch, resulted.
With lawmakers’ prayers answered by the roller coaster of oil prices, surely they remember the wisdom of saving for a rainy day, right?
Well, it turns out 2022 is an election year. And in election years, unfortunately, politicians tend to make some pretty self-serving decisions to try to shore up their prospects for a win in November.
The latest example? A proposed $1,300 “energy rebate” paid directly out of state coffers as, effectively, a bonus Permanent Fund dividend. If you ask lawmakers, they will naturally deny that the proposed payout is a pander to voters upset about diminished PFDs for the past several years while the state burned through its savings to make ends meet. Alaskans are feeling pain at the pump, they’ll say. The people know how to spend this money better than government does, others will chime in. It’s pretty easy to justify cutting a check from the state treasury when it has the beneficial side effect of giving you a better chance at retaining your public office.
On that note, it’s telling that all three of Alaska’s gubernatorial frontrunners — Dunleavy, former Gov. Bill Walker and former Rep. Les Gara — quickly signaled their support for the payout. It’s bad politics to say you don’t want to give your prospective constituents an extra $1,300.
“I’m hoping that we don’t get too much into wanting to spend and maybe put more towards savings,” Rep. Neal Foster said a week ago, signaling admirable restraint after years of tight budgets. But life comes at you fast. “So as we get more money and people are feeling the squeeze, we need to try to provide some relief for Alaskans,” Rep. Foster said just a few days later, after his caucus rolled out the $1,300 “rebate” plan.
“I personally would rather not be like drunken sailors and give a big fat PFD, like, ‘Woohoo, we can do this now,’ because I just don’t think it’s good policy,” said Rep. Adam Wool in late February. That’s the right call, but Rep. Wool has yet to speak publicly on the subject since his caucus rolled out its plan to dole out an extra check to residents, which differs from a “big fat PFD” only because the amounts are delivered via separate checks.
We have, of course, been down this road before. In 2008, former Gov. Sarah Palin successfully championed a $1,200 “energy rebate” check that, combined with the PFD, put $3,269 in each Alaskan’s bank account that year. It was a banner year for electronics sales at Best Buy and other retailers.
Of course, many Alaskans spent that $1,200 prudently — some even used it for its ostensible purpose, paying utility bills or buying heating fuel. But sending a check to everyone means it also goes to those who have no real need for it. And it’s a big trade-off: If the $740 million the state put toward those checks had been deposited into the Permanent Fund’s principal instead, it would be earning an average of more than $37 million per year that would help us weather oil revenue losses. If we had deposited it and not touched it, letting it continue to earn interest each year, it would have doubled by now — $1.4 billion, earning $74 million in interest per year.
So then what’s to be done with the first budget surplus Alaska has seen in a decade? Here’s a novel idea, one that parents often lament trying to teach their young children — don’t do anything with it, save it. If we can summon the fortitude to withstand the temptation of a $1,300 check, the $875 million the state saves would earn more than $43 million in interest each year. That’s almost half the amount the state spends on the Department of Law — paid for in perpetuity. We shouldn’t immediately spend this windfall on growing state government or “energy rebates,” we should deposit it in the corpus of the Permanent Fund or the Constitutional Budget Reserve — the state’s savings accounts.
It’s never easy to stand against what would surely be a popular payout to the public. But as the PFD wars in the Capitol for the past several years have shown, what is popular and what is responsible often stand diametrically opposed. Legislators should show leadership by opting to save our oil revenue windfall — not cash it out like the proverbial drunken sailor.