My Turn: The Permanent Fund Dividend in jeopardy, Pt. 1

  • By ALEXANDER HOKE
  • Wednesday, January 27, 2016 1:04am
  • Opinion

Editor’s note: This My Turn will run in two parts. The second will publish Thursday, Jan. 28.

Gov. Bill Walker’s plan to solve our $3.5 billion fiscal crisis repurposes Permanent Fund earnings with the unfortunate consequence that our beloved dividends will gradually disappear. Future dividends will be tied to new mineral royalties, not funded by earnings from the $50-billion Permanent Fund.

When pumping oil down the Trans-Alaska Pipeline (now at one-quarter capacity) becomes unprofitable, royalties will vanish and so will the dividend. Sure, it may be possible to extend the demise of the dividend by developing Alaska natural gas, but Prudhoe Bay oil is nearly exhausted after 39 years, so perhaps we can figure another 40 years for gas.

Does it matter that future Alaskans, say in the next century, will never receive a Permanent Fund Dividend? Well, I believe that Gov. Jay Hammond, Sen. Jay Kertulla, Rep. Hugh Malone, and Sen. Clem Tillion would be deeply disappointed with this eventuality.

Our Alaska Permanent Fund was created by a constitutional amendment in November 1976 and was principally funded by oil royalties, lease bonuses and special appropriations. Close to $15.9 billion in oil revenues have been invested in the Permanent Fund, with another $2.7 billion appropriated by the Legislature. Today, the Permanent Fund has grown to its current value of $49.8 billion largely due to reinvestment of earnings: around $16.2 billion in inflation proofing and $4.2 billion from realized earnings. Another $13.6 billion in unappropriated earnings round out the total.

Remarkably, our Permanent Fund has grown to about $50 billion while simultaneously distributing $23 billion in 34 dividends totaling $38,199 per eligible Alaskan citizen. This substantial dividend payout has clearly made a huge impact on the lives of Alaskan families and goes a long way toward elevating the income of the poorest in our state. (Source: Alaska Permanent Fund Corporation data)

What about the historic debate over the Permanent Fund’s purpose? Initially the general opinion was that oil revenue savings should support economic growth and diversification though small business loans, developing major energy and transportation infrastructure, and other development subsidies. Economists and bankers later convinced Legislators that mechanisms already exist to provide development capital and that subsidies were already being supplied by other government programs.

Gov. Hammond became convinced that two major objectives must be achieved by the Permanent Fund: share Prudhoe Bay’s one-time oil wealth with all future Alaskans, and create a brake on uninhibited government spending. Hammond conceived of a dividend payout patterned after private sector corporate investments, a plan he called “Alaska Inc.” His deep conviction was that this “permanent fund” must benefit current and future Alaskans equally and that putting these resource revenues in the hands of citizens would create a check on the voracious appetite of state government. Hammond’s tireless campaign for the dividend concept eventually achieved sufficient Legislative support for passage into law. Surely 34 years of dividend payouts is evidence that this program was the product of the collective wisdom of our government leaders in those early days.

Government officials are now arguing that the original purpose of the Permanent Fund was to fund state government when the oil money runs out. There are two things wrong with that message. First, our oil is not yet gone, and second, Hammond stated in reference to dividends on June 14, 1982, that the Permanent Fund “oil wealth belonged to Alaskans themselves not the government.”

Further, Hammond remarked that the dividends are calculated to “create a collective constituency militantly determined to defend the Permanent Fund against special interest ‘invasion.’” Hammond expressed the importance of mechanisms to “help curb excessive government spending” and saw that paying for government service through taxation properly creates the necessary Legislative constraint in the face of powerful lobbying forces employed by special interests.

Let us not forget that since the discovery of oil at Prudhoe Bay, about $137 billion has flowed into the state’s general fund for appropriation by the Legislature, while $15.9 billion was directed into the Permanent Fund. State expenditures beyond the $137 billion in Unrestricted General Funds include Designated General Funds ($.81 billion in FY16), Federal Funds ($1.99 billion FY16) and other State Funds ($1.3 billion FY16). (Source: Alaska Office of Management and Budget)

Consider for a moment the value to you personally of the dividend from the Permanent Fund over the last 34 years as compared to the more than seven-fold expenditure of oil money by your government in that same period of time. You ask, “How can my government benefit me most in the future?” The answer is simple: by keeping the Permanent Fund program intact.

Can we solve our fiscal problem and preserve the Permanent Fund Dividend? Part two will address that question.

• Alexander Hoke is a 40-year Alaska resident, currently engaged in property management and construction. His work experience also includes legislative policy analyst, president of a Rural Electric Utility (GHEA) and service as a City & Borough of Juneau Assemblyman. 

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