PFD legislative history: Created in wisdom, subverted in folly
Alaska citizens are about to be written out as owners of the Alaska Permanent Fund. The Permanent Fund Dividend currently defines you as a shareholder in this massive investment fund. In fact, many of us have been share-holders for 34 years now. The earnings of the Permanent Fund have historically been used only to pay dividends, inflation-proof the fund and cover dividend program costs, but that is about to change.
Legislative leaders seem to be in agreement that the solution to “their” fiscal problem is to do what they call “restructuring the Permanent Fund.” What that means is that Alaska statutes will be altered to make state government the owner of record, not the people. Permanent Fund earnings will flow directly into government coffers available for appropriation.
In hopes of placating us, the current owners of the fund, legislators are busy trying to figure out how best to create the illusion of a continuing dividend program. Under the various bills before the legislature, these token dividends will either disappear altogether in a couple of decades or we will be offered a fixed amount that erodes in value with inflation. If it matters to you that your great-great grandchildren receive a meaningful dividend, then inflation is the enemy. Eventually inflation will render any fixed dividend nearly worthless.
What about the Permanent Fund’s future? Considering only inflation-proofing the Permanent Fund at 4 percent per year over the next 100 years, our $50 billion Permanent Fund would grow to $2.5 trillion. Don’t believe me? Do the math!
Can you see why the Legislature desperately wants control of this investment fund? If the Permanent Fund continues to belong to the people, future Alaskans will have a powerful economic engine working for them and Alaska’s economy. If, on the other hand, the mammoth earnings of the Permanent Fund flow directly into the hands of government, citizens will have about as much to say about how those funds are spent as we have over the last 30 years.
Special interest lobbyists, on the other hand, will have enormous incentive to camp out in legislative halls to “advise” legislators on how best to spend the “government’s money.”
So if our Legislature decides to “restructure” the Permanent Fund as currently planned, Alaska citizens not only lose the ownership right to the investment earnings but we get a future government that is increasingly non-responsive to the wishes of the people.
There is a reason why other states pay for government services with tax revenues. Because tax revenues come from the people, legislators know that citizens care how that money gets spent. But with the endowment concept envisioned by our legislature, elected officials won’t look to the people for guidance on how to spend money generated by a government fund for the explicit purpose of government appropriation.
Why does our Legislature so dearly covet the earnings of the Permanent Fund? Simply put, Permanent Fund earnings can permanently solve the fiscal dilemma which, let’s be candid, they created. There is really no excuse for the fact that our government willfully exposed the State of Alaska to the risk of the fiscal calamity that we are currently in.
By the end of the Hammond administration, our state operating budget was on the order of $2.2 billion, and continued roughly this size through the Sheffield administration, the Cowper administration, the Hickel administration, two terms of the Knowles administration, and the Murkowski administration. Finally with Gov. Sarah Palin, the budget broke loose, averaging $4.0 billion. Then under the Parnell administration, the state operating budget averaged $5.4 billion. (This is from the state’s Office of Management and Budget data.) We need an explanation for this doubling of our state budget in such a short period of time.
Government officials want us to believe that declining world oil price is to blame, and of course, nobody could have predicted the precipitous decline. Wrong! In the 1980s we watched in horror as the price of oil dropped to $9 per barrel. Only a closed mind could have ignored the potential for state revenues to plummet should a similar oil price decline occur as has now happened. Our government should have protected us.
Our misaligned budget needs to be corrected now but a “restructuring” of the Permanent Fund only serves to take the Legislature off the hook. With Permanent Fund “restructuring,” business can continue as usual and the legislature can stop worrying if our budget is justifiable or affordable. Problem solved.
Don’t be fooled. The Legislature has total control over all appropriations including the size of our dividends without changing state statutes or our Constitution. Say no to “restructuring.”
Alexander Hoke is a 40-year Alaska resident, currently engaged in property management and construction. He also has worked as a legislative policy analyst and president of a rural electric utility (GHEA). He is a former City and Borough of Juneau Assembly member.