Brennan: Decision time in Juneau

By Tom Brennan |

If you still have a hat, hang onto it. The Alaska Legislature opens its first session of the year a week from Tuesday.

On January 16 everything goes on the table and this year you can be sure that a lot of things will be resolved that have been hanging over our heads for a very long time.

One of those will be a decision to use a portion of Permanent Fund earnings to fund state government. If they don’t take it from the Earnings Reserve account of the Permanent Fund, the only alternative will almost certainly be to impose new taxes, presumably on you and me.

While some will almost certainly say sock it to the oil companies, that would be a very destructive strategy. It would discourage new investment at a time when we very desperately need new investment, especially in projects that will produce more oil and generate more tax and royalty revenues.

Those who oppose using any part of the Permanent Fund earnings for state government will claim that the primary purpose of the fund is to generate those dividend checks.

That’s bullpucky. The fund was established as a way to put money away for the future cost of state government. And the future has arrived. Oil revenues are stronger than they have been in recent years but they aren’t strong enough to cover the entire cost of state government.

Meeting those costs — and the obligations from which they stem — will require using the earnings of the fund to fill the purpose for which the fund was established.

Those who argue that the fund’s purpose is to pay dividend checks to you and me conveniently forget that the momentum for establishing the fund came from the 1969 sale of leases on about 450,000 acres near the big discovery at Prudhoe Bay. That sale brought in $900 million, more money than Alaska had seen at one time in its history.

But the Legislature blew through that $900 million faster than anyone could have imagined, leaving the public emotionally exhausted and committed to setting aside part of its coming oil bonanza to cover at least some of the state’s future needs.

Gov. Jay Hammond was the primary advocate for the Permanent Fund and he used public shock at how fast the lease sale money went to convince voters to support a constitutional amendment that would establish the fund.

He also advocated for a dividend to be paid to individual Alaskans and that was heartily welcomed by the public. But the people’s first priority was very much to set aside money for the future, the time when oil revenues would dwindle. The dividend was gravy, most welcome, but gravy.

And for many years we have not had to dip into the fund’s earnings to pay government expenses. That time has ended. There is no way we can stretch current oil and gas revenues — or reduce the cost of government enough— without drawing on the reserve account set aside for that purpose.

We should definitely keep trying to cut government spending. But despite claims to the contrary by certain advocates for state spending, we will also have to dip into reserves.

A great many state government expenses are caused by formula programs that our legislators don’t have much control over. Columnist and oil and gas fiscal consultant Brad Keithley notes in his latest column for Alaska Politics and Blogs that 56 percent of state spending goes to formula programs that the Legislature has little control over.

Things aren’t hopeless in that arena. Keithley says the Legislature should get under the hood of some of those programs and see what really is essential and what can be reduced or dispensed with.

But the state will still have to dip into Permanent Fund earnings to cover state expenses. And there is a pool of money there to be dipped into. The Earnings Reserve Account had a hefty balance of $12.8 billion last June 30 and has been promised another $4.4 billion from the Permanent Fund this year.

The current budget deficit is $2.8 billion; that is a lot of money but could easily be covered by Earnings Reserve with plenty of money left to pay a dividend.

We need to spend the state’s money wisely and the Legislature should make doing so its highest priority for 2018. But, don’t panic. The state has enough money in the bank and new money coming in to meet its needs.

We will need wise decisions to make it all work but those are not unheard of.

3 Responses to Brennan: Decision time in Juneau

  1. Randy S Griffin Fairbanks Alaska January 7, 2018 at 2:12 pm

    I’m in favor of a Perm Fund dividend payout to the people to the extent that there is surplus money available, above and beyond the basic requirements of essential government services. It is important that we get the citizenry motivated to want to trim down the size of government so that there will be more money available for a dividend payout.

    If there was a sliding scale for the size of the dividend, people would get very motivated. A statute could set the floor for the PFD at $300 for every citizen. A statutory formula could state that the dividend shall increase to the extent that surplus money grows due to diminished state expenditures and an increase in the size of the Permanent Fund The sky could be the limit for the size of the dividend payout with these 2 factors going in the right direction.

    Of course, a condition for an increase in the dividend payout would be that the state budget be balanced without dipping into the CBR savings account. But it would be fine to dip into the constantly regenerating earnings of the Alaska Permanent Fund, to supply funding for needed government services, because that was its original purpose. Excess earnings would be used to pump up the size of the PFD.

    On the other hand, if the PFD was a fixed amount – say $1200, then many citizens would not care if the state’s budget was balanced or not. They would not get involved and advocate for leaner and more efficient government. They would just grab the $1200 and at the same time demand more government benefits. They would then demand a state income tax be imposed on working Alaskans to pay for it all.

    Reply
  2. Jim Crawford January 7, 2018 at 9:32 pm

    Tom,

    In 1982, The Legislature passed a bill which did three things:
    1. It established inflation proofing to protect the principle of the Permanent Fund,
    2. It established a formulae for dividends at 50% of the average earnings of the Fund over a 5 year earnings period and
    3.. it applied the same 50% of earnings as available for spending on needed government services.

    At Permanent Fund Defenders, we recognize the dangers to the Fund and damage to Alaskans of Governor Walker and the Legislators violating state statutes by cutting the Peoples’ dividend. That why we are working hard to provide Constitutional protection for the simple, balanced distribution program for earnings of our Fund.

    Jim Crawford
    President
    Permanent Fund Defenders

    Reply
  3. Morrigan January 10, 2018 at 7:25 am

    Create a Constitutional Amendment that ties PFD payouts to an annual –external– audit of state finances.

    Remember, a budget’s just a piece of paper which offers the layperson little in the way of readily verifiable, understandable fact.

    A budget is presented by officials whose careers may depend on how much money they can get for their respective organizations.

    The layperson can only imagine the role that lobbyists and public-employee unions play in the budget process, which directly impacts their livelihoods.

    We have –no– idea how much money the state actually receives, spends, or where that money goes.

    All we seem to have are lamentations about Getting More Money because money on hand is never, will never, be enough to support our lobbyist-legislator team in the style to which it has become accustomed.

    Mr. Crawford might discover a lot of support for a Constitutional Amendment that enshrines the PFD, and ties the PFD amount to a required external, annual audit of the state of Alaska’s finances.

    Reply

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