Empire Editorial: Build the money factory to keep Alaska solvent

  • Thursday, October 29, 2015 1:01am
  • Opinion

The next time someone you know uses the phrase “raiding the Permanent Fund,” please do us a favor.

Take them aside, talk to them, and gently give them a dope slap.

That overused cliche does nothing to solve the state’s rapidly approaching fiscal cliff and does much to poison good ideas.

On Wednesday, we heard one of those good ideas from Attorney General Craig Richards. In a presentation to lawmakers, he explained how the state can turn the Permanent Fund into what is effectively a money factory by loading it with most of the oil and gas revenue of the state every year.

That money, invested in the Permanent Fund, can earn an important return for Alaskans.

Thanks to the sharp leadership of the Alaska Permanent Fund Corporation, the Permanent Fund has averaged a 6.4 percent return over the past decade. If it averages a return of at least 6.7 percent (over the past five years, the average return has been above 10 percent) and the Walker Administration Plan is implemented, the state could generate $3.3 billion per year from the Permanent Fund — forever.

The state right now faces a $4 billion gap between revenue and expenses. The Walker Administration Plan won’t fill all of that gap, but it reduces it to a manageable level, a solvable level.

Furthermore, it does so without killing the dividends that many Alaskans rely upon. Half of the state’s oil and gas royalties will each year be devoted to the dividend, ensuring it continues.

Unfortunately, it won’t continue without cost.

Richards estimates that if the plan is implemented and oil prices don’t rise, next year’s dividend would be in the range of $1,000 instead of the $2,000 we saw this year.

Furthermore, the dividend would be subject to the volatility that state revenue now experiences. The state would be granting itself the relative stability of Permanent Fund earnings, while giving Alaskans the year-to-year volatility of oil prices.

If you consider the economic effects of state government, you may well think that exchange is a worthwhile one. According to Raincoast Data’s latest analysis, state government jobs pay 14 percent of all wages in Southeast Alaska.

“Wages” is a cold way to measure the jobs of our local friends and family, but it’s countable and exact. Every dollar spent locally creates other local jobs, helping Southeast Alaska stay vibrant and livable.

Alaska Senate President Kevin Meyer, R-Anchorage, has said the “devil is in the details” of this proposal.

We agree. The Alaska Legislature should give the Walker Administration Plan a firm vetting, but it should be a fair one, and it should be done this year.

It’s entirely possible that this plan is simply a political football. Legislators, particularly those from the Railbelt, have called for Gov. Bill Walker to simply cut his way to a balanced budget. The Walker Administration Plan offers a partial alternative, and if legislators reject it, they will cut out what is expected to be the heart of the governor’s budget plan.

If that happens, lawmakers themselves will have to cut the budget (during an election year) or simply kick the can down the road for another year.

The state’s Constitutional Budget Reserve, as of Aug. 1, contained $9 billion in reserves. Every day the state operates without a balanced budget draws down that savings account. In two years — barring a sudden rise in oil prices — it will be exhausted and the state will face a truly impossible choice.

We’re told that implementing the Walker Administration Plan will cost at least $3 billion from the CBR. If the Legislature does not act in this approaching regular session, it may not have time to act at all.

Editor’s Note: An earlier version of this editorial called the Walker Administration Plan, the Richard’s Plan. The Empire feels it is more accurate to acknowledge all those who had a hand in formulating the plan and has since updated the copy. 

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