Recession depression Using fund won’t get us out of hole
Skin in the game? I’ll say. Big oil is trying to skin us again. Our skin, their game, if they get their way. Their turn to pay. The worm has turned. Or have we?
Alaska is in recession, but we have the tool to lessen its impact on communities. The most effective way the state can stimulate the economy is recognized to be the Permanent Fund Dividend, because Alaskans spend nearly all of it — and nearly all in Alaska. Anything legislators can do to reduce the budget deficit is painful, but attacking the Fund and its Dividends has the worst impact on the overall economy. Far better to get a fair share for our oil.
The worst thing the Legislature and Gov. Walker are doing has gotten the least attention: eliminating the inflation-proofing required under current law. Elmer Rasmuson, creator of the greater National Bank of Alaska and the Rasmuson Foundation, and the first Permanent Fund chairman, knew something about money. Rasmuson called inflation “the thief in the night.”
The present executive director of the Permanent Fund Corp. told the Seaton-Foster House Finance Committee that at an estimated 2 percent annually, inflation will decrease the true value of the Permanent Fund by 40 percent in 20 years. The constitutional wall intended to keep the Fund actually permanent has been breached.
Last year, for the first time, the state failed to inflation proof, a loss of $889 million to the fund. Moving through the Legislature now are Reps. Seaton and Foster’s HB115 and Governor Walker’s HB61, both of which would make the requirement for inflation proofing merely optional. I believe these men are well intentioned and want the best for Alaska, but to change inflation-proofing from “shall” to “may” means it will not be long before the Fund will float nobody’s boat. If inflation is the thief in the night, these bills provide the getaway car.
The representatives recently published a newspaper commentary in which they wrote, “We think about Governor Hammond and what actions he would consider at such a time.” No need to over think what Jay Hammond would do: the opposite of your bill.
He told Alaskans many times, in every way he could. I can quote him because after he died, the Kachemak Resource Institute copy edited, published and paid for printing of his last book, “Diapering The Devil” (from a saying that “oil is the devil’s excrement”). We donated his book to all the 167 libraries in Alaska and sent dozens to legislators. We have published more of his interviews and papers. We are working now on a volume of his collected writings.
While eliminating inflation-proofing robs the Fund in the long term, these bills also cap the dividends, with the unintended consequence of deepening the current recession. Jay Hammond was very opposed using Fund earnings by capping dividends. He wanted to forever enshrine a full dividend and inflation proofing. “In no case,” he wrote, “shall dividends be less than one half the previous five year average earnings of the Fund.” No Walker-Seaton-Foster reduction in Dividends would he agree to.
The Department of Revenue and Legislative Research Services produced a report “Reduction of Permanent Fund Dividends: Effects on Total Payments, By Community.” A reduction of $1,000 in 2016 shows losses: Homer/Anchor Point — $12 million, the equivalent of 240 jobs at $50,000/year; Kenai/Soldotna — $27.5 million, 550 jobs; Anchorage — $225 million, 4,500 jobs. The list includes every zip code in Alaska for total of about $700 million,14,000 jobs.
In addition to this, the Department of Revenue, the University of Alaska Institute of Social and Economic Research and Northern Economics Consultants agreed there would be 2,000 fulltime jobs lost every year as a result of the reduced PF coupled with broad-based state property, income or sales taxes.
To grow the economy we should increase Dividends, not cap them. To maintain services we fund through government — schools, roads, public safety, medical care, fish and game regulation etc. — is not a temporary need. We need to grow the Fund to provide enough earnings to pay the bills.
Jay Hammond would certainly agree with Seaton and Foster about two important things in their bill: he supported adopting a Percent of Market Value method for use of Fund earnings, and he heartily endorsed restoring the income tax very like the one proposed.
He also never wavered in arguing that the oil companies were cheating Alaska in every way they could think up. He said we should act to get the full measure of our original bargain requiring them to pay billions in arrearages until we had our agreed on share. Hammond wrote: “Only then should a broad-based sales or income tax be imposed if we lack sufficient revenues to fund essential government programs.”
Hammond also wrote: “Unfortunately, oil contributes substantially to the election of many legislators, who seem inclined to bow to oil company threats, rather than place the public interest above that of big oil.” Big oil loves dividend caps and taxes on families, which keep the wolf (if only we had one) from their door.
And he did not hold Alaska government harmless; pointing to the myriad of alphabet agencies from AIDEA to AHFC to CFAB that we could cut back. Between them, the Constitutional Budget Reserve, and the Permanent Fund Earnings Reserve we now have $25 billion in savings.
David Teal, legislative finance director says our savings will fund government only until 2027.
We have time and money. We need leadership with majorities in both houses to build the Fund and cut back on wasteful state authorities, corporations and development banks. We can use all of these to reduce the pain of recession. Keep people working, private sector and public. Cut the oil industry rebates and write-offs, not the Permanent Fund Dividend.
Larry Smith is a longtime Homer resident and as he writes “executive foot” of the Kachemak Resource Institute.