EDITORIAL: Will 2024 bring a fiscal plan — or doom the PFD?

In a few days, Alaska legislators will gavel back into session in Juneau. Waiting on their plate, as has been the case for a decade, will be the state’s budget crisis and the need for a sustainable fiscal solution. With oil revenues diminished from their former status of providing for the vast majority of state spending, it will once again be the state’s investments playing a crucial role in bridging the gap between what Alaska has and what it needs. But the question that remains to be answered is whether legislators and Gov. Mike Dunleavy will do the hard work of hammering out an enduring spending plan, or keep on punting and take yet another step toward fiscal insolvency and the death of the Permanent Fund dividend.

Prognosticating about the end of the PFD was once laughed off as doomsday talk, but thanks to declining North Slope oil revenue, economywide lackluster investment returns and legislators’ tendency to gleefully raid the state’s piggy banks during election years, the end of the annual checks to Alaskans could be in sight, as Permanent Fund Corp. officials warned last summer. Under bearish revenue models (the kind that reflects poor returns and/or high inflation — not unlike what has happened in the past few years), APFC CEO Deven Mitchell said in July that the fund’s earnings reserve, out of which PFD checks are paid, could be exhausted within three to four years. Nothing since that time has meaningfully altered the conditions that led to Mitchell’s forecast; North Slope crude prices stand several dollars lower now than the day Mitchell presented that warning, so the oil price fairy does not appear likely to swoop in and bail us out yet again.

Making matters worse is lawmakers’ tendency to dip especially deeply into state savings in election years for oversized PFD checks that buoy their reelection prospects and also for capital projects that bring the bacon home to legislators’ districts. If our elected representatives fail to exercise spending restraint, Mitchell’s dire forecast could seem optimistic by year’s end.

What would be better than this annual tug of war over the PFD amount (and spending in general) that stands to bankrupt Alaska’s savings accounts and end the dividend program if left unchecked? Glad you asked. The Permanent Fund trustees themselves proposed a solution in 2020 that would take the matter out of legislators’ hands, which would greatly reduce the opportunities for fiscal hostage-taking that have not only inflated the budget but also dragged the spending harangue out across multiple special sessions.

Under the trustees’ proposal, the Permanent Fund’s earnings reserve would be combined with its constitutionally protected principal, placing all funds except the annual percent-of-market-value draw off-limits to the Legislature. The plan, which would require voter approval via constitutional amendment, would also have the benefit of increasing the invested principal, generating greater returns and increasing the likelihood that one day, Alaska’s need for oil revenue will be diminished to the point that we won’t be watching the spot price of ANS crude like passengers on the world’s highest-stakes roller coaster. By placing the earnings reserve off-limits within the principal, the Permanent Fund would return to the form that its designers envisioned — a true endowment not susceptible to raids by opportunistic lawmakers looking to juice spending or sweeten the amount of the PFD. The annual disbursement from the fund would operate according to the formula established in law, and there would be no opportunity for legislators to alter it — and thus no reason to hold the budget or other bills hostage over it.

Is it especially likely that after a decade of fruitless bickering over a sustainable fiscal solution, legislators and the governor will summon the political courage to make this the year that we chart a better course? The past would tell us it’s not particularly likely. But this is a new year, and new years are about hope for the future. Let’s hope that lawmakers resolve to do the hard work to right Alaska’s finances this year — regardless of how they think it might affect their reelection.