You have probably heard the big news. Gov. Bill Walker is vetoing funding for the full Permanent Fund Dividend this year, which is expected to make the dividend payment drop to $1,000 from an otherwise expected dividend of over $2,000. While many of the other vetoed items may be beneficial to Alaska, cutting the dividend is the wrong approach. Institute of Social and Economic Research, or ISER, economists identified cutting the PFD as the most harmful way to fill the deficit. Cutting the dividend treats the symptoms of our fiscal problems and not the cause. Furthermore, not only does it not treat the cause, it exacerbates it by creating a further incentive for increased spending.
On March 30, University of Alaska ISER economists Gunnar Knapp, Matthew Berman and Mouchine Guettabi published a paper called “Short-Run Economic Impacts of Alaska Fiscal Options,” available to view online here: www.iser.uaa.alaska.edu/Publications/2016_03_30-ShortrunEconomicImpactsOfAlaskaFiscalOptions.pdf.
Although it is a 96 page report, many of you will enjoy reading the much shorter four-page executive summary. They looked at how much a deficit reduction brought about in the following categories would impact income of Alaskans: cut state workforce, broad-based state cuts, cut the capital budget, cut pay of state workers, both progressive and flat income taxes, sales tax of 4 percent and 3 percent, 2 percent property tax, and cuts to the PFD. For every $100 million in deficit reductions to the PFD there is going to be $130 to $150 million in damage to our income. They write, “Dividend cuts would have the greatest short-run effects on income … and they would disproportionately affect low-income Alaskans, who spend more of their income.” The least harmful options identified by this metric would be capital budget cuts and broad-based state cuts.
University of Alaska’s most renowned Economist, Scott Goldsmith, identified $4.5 billion as the state’s maximum sustainable budget as recently as Nov. 17, 2015 (www.iser.uaa.alaska.edu/Publications/presentations/2015_11_15-TheAlaskaEconomyChallengeAhead.pdf).
Just like a disease, you can have it for sometime before you begin to feel the symptoms, the state of Alaska chose to spend in excess of this sustainable number for close to a decade and we have only recently begun to feel the symptoms. Remember, this sustainable estimate is for state spending after the PFD is paid out. Transferring Alaska citizens’ money from the dividend program to state coffers does nothing to address the continued problem of overspending but does the opposite.
We have consistently seen in the past that in periods of high oil prices when there was plenty of revenue, state spending grew rapidly. A cynic might say our resources were squandered in such times. There is no reason to believe that turning more than half our PFDs into a new source of money for our government to spend will do anything but encourage additional spending just like high oil prices have done in the past, the opposite of what needs to be done to solve the cause of our fiscal woes.
I applaud the governor’s efforts to fix this serious problem that the state faces, but I oppose the PFD cut. The PFD cut is the most harmful way to fill the deficit. Our first step should be setting our spending at or below sustainable levels.
• Aaron Lojewski is an employee at RE/MAX Associates of Fairbanks.
