Jenkins: Enshrining Permanent Fund dividend in the constitution would make a bad idea even worse

By Paul Jenkins |

If you can say anything for certain about many lawmakers, it is this: They never, ever give up pushing their ideas — no matter how lousy those ideas might be.

Take, for instance, the notion of enshrining the Permanent Fund dividend — itself a particularly harebrained public policy decision dating back to 1980 — in the Alaska Constitution, thereby compounding the Legislature’s 39-year-old error.

Lawmakers — Republicans and Democrats alike, I’m sorry to say — have embarrassed themselves over the past few years with repeated attempts to constitutionally ensure the Permanent Fund dividend is paid, no matter what.

This time around, Democratic Sen. Bill Wielechowski, as he did in 2016, has offered Senate Joint Resolution 1. In the House, Democratic Rep. Chris Tuck has offered mirror legislation in House Joint Resolution 3. If approved by two-thirds of the Legislature and voters, the amendment would enshrine the dividends and a formula to calculate them.

The impetus for all this appears to be former Gov. Bill Walker’s overriding the statute-based formula in 2016 and vetoing $696 million of the $1.4 billion appropriated by the Legislature for dividends as the state faced massive budget deficits.

Wielechowski sued, challenging the governor’s veto authority. The Alaska Supreme Court sided with Walker. The Legislature, not to be outdone, overrode the formula in the following two years. The money remains stashed in the fund’s $16.6 billion earnings reserve account.

A lingering question unanswered by the save-the-dividend-at-all-costs crowd is this: If oil prices crash, as they did in the 1980s and again a few years ago — and prices were to remain low — what then? Dividends are nice, but Alaska has other constitutional obligations, funding retirees and education among them. Would an enshrined dividend, complete with its own formula, elevate the annual payout above retirement pay or funding education, which have no constitutionally mandated spending formula, when push comes to shove? That seems almost unthinkable.

In a state with a long, sad history of boom-and-bust cycles and only one resource to pay the bills, how can anybody begin to guarantee — constitutionally guarantee, no less — an annual dividend, when nobody even knows for sure how much money the state will have next Thursday? What happens when there is not even enough money to pay the required dividends? What if there is not enough money for dividends and government services, even truncated government services? What goes away to pay dividends? Public safety? Health? Courts? Medicaid?

Count me among the grievously conflicted, those who like the dividend, but know it is wrong, wrong, wrong. OK, count me among the grievously conflicted, those who love the dividend, but know it is wrong, wrong, wrong. It is free dough, a sinfully guilty pleasure akin to ignoring your doctor and eating a pile of Chicago hot dogs, pizza and chocolate cake — and washing it all down with $200-a-shot hooch. And the idea of reimbursing the dividends shorted over the past few years? That is more than appealing — despite real questions about where the dough would come from.

That the dividend, as hatched, was a bad idea is undebatable. It has pushed and tugged at Alaska’s fiscal policy for decades and now is the tail wagging the dog. Ostensibly created as a buffer to protect the state’s oil wealth savings account from greedy lawmakers, it has morphed into a vast entitlement program. Over the years, as Alaskans grew more attached to their slice of Alaska’s oil wealth, the now-$61 billion saving and investment account’s raison d’être evolved — from being the Alaska Permanent Fund to the Alaska Permanent Dividend Fund.

When it comes to the dividends, it would be nice to stuff the genie back in the bottle, rethink the entire idea and find a better way to keep government honest, but we are all grown-ups here. The dividend is going nowhere; that train left years ago. It now is an integral part of the Alaska economy, a financial cornerstone for many Alaskans and economic manna from heaven. Doing away with it could be calamitous on many levels.

While there are many Weilechowskis and Tucks among us who sincerely believe enshrining the dividend is a good idea, they are wrong. At some point, a constitutionally protected dividend would inflict real fiscal damage. The answer is not in making the dividends unassailable, it is in changing the statute to provide an affordable dividend and electing lawmakers and a governor who will follow established law — and punishing them at the ballot box when they do not. The dividend program, you will remember, chugged along just fine without constitutional protection from 1980 until Walker’s veto.

Adopting a new, untenable and burdensome constitutional amendment with the potential for catastrophic consequences is not just an idea.

It is a lousy idea.

4 Responses to Jenkins: Enshrining Permanent Fund dividend in the constitution would make a bad idea even worse

  1. Randy S. Griffin Fairbanks Alaska January 21, 2019 at 7:05 am

    I agree that it would be a terrible mistake to “enshrine” cash payments to the people, in the Alaska Constitution.

    On a slightly related subject, I hope that the application for PFD back-payments (from reductions during 2016, 2017 and 2018) can be kept separate from the regular 2019 PFD application.

    I absolutely do not want to apply for any “back-payment” PFD money. But I would like to apply for the regular 2019 PFD.

    It is my intention to donate my 2019 PFD to the state’s general fund, to help close the projected $1.6 billion state budget deficit.

    Reply
  2. A.M. Johnson January 21, 2019 at 10:40 pm

    Editor

    Interesting opinion. I will attempt to rebut on some of the inclusions.

    (1) The lingering question unanswered. The formula is based on a five year average. As the fluctuations of those years reflect, so will the dividend of that year being paid. If the value due to oil prices (you failed to mention other incomes to the fund other than oil) then the payment will reflect those adjustments. All of us will share in a equal at the moment of decision the amount allocated by that formula.
    You go on to name several key sectors that would be affected by not receiving the due payment as a priority.. Hummmm. So the educational sector will receive allocated funds that would include taken away dividend funding, yet employees of the educational field would benefit from negotiated contracts that would receive funds to pay for the increased contract terms and such at the loss from non-educational folks. Seem a bit unfair on the surface.

    (2) What if there is not enough funds for both dividends and government services? Of the series of “What Ifs” you mention Medicaid. as recalled, the amount allocated for potential Medicaid cost advocated by the then Governor fell far short of the actual cost. A subject that was clearly brought out as the potential prior to the action to accept was made. Harsh to say, “Last in first out” said if in fact the time comes for such action. at the same time it is supposed that the dividend projected for that era or year will reflect a harsh reduction due again to the reduction reflected in the five year average.
    As to the other sectors you mention, public safety, Health, and Courts. Let us see what the current Governor comes up with in his budget and cost reduction ideas before we panic.

    (3) Regarding the concept of the hatched dividend being a bad idea and undebatable, I disagree and side with Oral Freeman (D)-Ketchikan, one of the funding authors of the permanent fund. I recall a enough of other “Smart” well though of legislators from both parties who agreed.
    I would suggest some due diligence is in order where the minutes of the legislative debate on the genius forming of the Permanent fund be reviewed. In essence Oral clearly stated that if the oil money was not protected in the format of the current formula and process, the legislature would abscond with the money. To paraphrase Oral- “It will serve as a insurance policy over the legislature. The residents will be ever so watchful so as to protect the intent of sharing. Without such a guarantee the legislature will find ways to spend the money willy nelly” end of paraphrase as I recall conversations with Oral in his Ketchikan outboard repair shop on any occasion to discuss the fund.
    and so that comment brings me to your comment regarding “But we are all grown ups here” end quote. Not hardly Paul, I see no demonstration that grown ups are agreeing on much at the moment or in the past. It is fact that each and every legislator has a desire and pledge to do good for his/her district. That ‘good’ is money in some form.
    For example our House Representative formally a public school teacher here in Ketchikan for many years, led teacher negations’ during my terms on the local school board He was a hard act in terms of working to better the teachers well being. When asked where in the school budget the funds would be found to pay for the demands, the response in paraphrase was: “School Board President, that is not our worry, this is about our teachers where you get the money is your job” end of paraphrase. The point I am making about “We are all grown ups here” is this legislator has publicly stated and rightfully so, no objections knowing his stance, that he will push educational for maximum funding and he will. Were Permanent funds available and for this instance reflect on the earlier comment above on education will gain through his support at the expense of the remaining general permanent fund replicant, So will be the case with every other legislator with his or her campaign agenda goals.

    In closing, while the debate on putting the fund into the Constitution is far from over and whether it is good or bad is a court session still out for decision.
    I respect your intent however not to the extent that trust in the legislature doing the “right thing” falls far below the desire to eliminate the temtation as has recently been demonstrated, to use the fund as a legislative bank account.

    A bit long with this epical Paul but these are my comment

    Regards,
    A.M.Johnson-Ketchikan

    Reply
  3. A.M. Johnson January 22, 2019 at 8:33 pm

    Subject: Your piece on the permanent fund today

    Editor

    Interesting opinion. I will attempt to rebut on some of the inclusions.

    (1) The lingering question unanswered. The formula is based on a five year average. As the fluctuations of those years reflect, so will the dividend of that year being paid. If the value due to oil prices (you failed to mention other incomes to the fund other than oil) then the payment will reflect those adjustments. All of us will share in a equal at the moment of decision the amount allocated by that formula.
    You go on to name several key sectors that would be affected by not receiving the due payment as a priority.. Hummmm. So the educational sector will receive allocated funds that would include taken away dividend funding, yet employees of the educational field would benefit from negotiated contracts that would receive funds to pay for the increased contract terms and such at the loss from non-educational folks. Seem a bit unfair on the surface.

    (2) What if there is not enough funds for both dividends and government services? Of the series of “What Ifs” you mention Medicaid. as recalled, the amount allocated for potential Medicaid cost advocated by the then Governor fell far short of the actual cost. A subject that was clearly brought out as the potential prior to the action to accept was made. Harsh to say, “Last in first out” said if in fact the time comes for such action. at the same time it is supposed that the dividend projected for that era or year will reflect a harsh reduction due again to the reduction reflected in the five year average.
    As to the other sectors you mention, public safety, Health, and Courts. Let us see what the current Governor comes up with in his budget and cost reduction ideas before we panic.

    (3) Regarding the concept of the hatched dividend being a bad idea and undebatable, I disagree and side with Oral Freeman (D)-Ketchikan, one of the funding authors of the permanent fund. I recall a enough of other “Smart” well though of legislators from both parties who agreed.
    I would suggest some due diligence is in order where the minutes of the legislative debate on the genius forming of the Permanent fund be reviewed. In essence Oral clearly stated that if the oil money was not protected in the format of the current formula and process, the legislature would abscond with the money. To paraphrase Oral- “It will serve as a insurance policy over the legislature. The residents will be ever so watchful so as to protect the intent of sharing. Without such a guarantee the legislature will find ways to spend the money willy nelly” end of paraphrase as I recall conversations with Oral in his Ketchikan outboard repair shop on any occasion to discuss the fund.
    and so that comment brings me to your comment regarding “But we are all grown ups here” end quote. Not hardly Paul, I see no demonstration that grown ups are agreeing on much at the moment or in the past. It is fact that each and every legislator has a desire and pledge to do good for his/her district. That ‘good’ is money in some form.
    For example our House Representative formally a public school teacher here in Ketchikan for many years, led teacher negations’ during my terms on the local school board He was a hard act in terms of working to better the teachers well being. When asked where in the school budget the funds would be found to pay for the demands, the response in paraphrase was: “School Board President, that is not our worry, this is about our teachers where you get the money is your job” end of paraphrase. The point I am making about “We are all grown ups here” is this legislator has publicly stated and rightfully so, no objections knowing his stance, that he will push educational for maximum funding and he will. Were Permanent funds available and for this instance reflect on the earlier comment above on education will gain through his support at the expense of the remaining general permanent fund replicant, So will be the case with every other legislator with his or her campaign agenda goals.

    In closing, while the debate on putting the fund into the Constitution is far from over and whether it is good or bad is a court session still out for decision.
    I respect your intent however not to the extent that trust in the legislature doing the “right thing” falls far below the desire to eliminate the temtation as has recently been demonstrated, to use the fund as a legislative bank account.

    A bit long with this epical Paul but these are my comment

    Regards,
    A.M.Johnson-Ketchikan

    Reply
  4. Bill Hutchison January 23, 2019 at 5:39 am

    My take away from the article, is a high earner doesn’t want to see an income tax taking a big bite of his income when he can get low earners to pay his taxes for him.

    Reply

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