Alaska doesn’t have a fiscal crisis, we have a math problem and a lack of political will to solve it.
According to the Legislative Finance Division, the state expects to receive $1.2 billion from annual revenue (oil royalties, severance taxes, and other smaller taxes) and another $3.1 billion from the annual 5% draw from the Permanent Fund. That totals $4.3 billion. Coincidentally, Governor Mike Dunleavy proposes to spend $4.3 billion for the operations of state government. Some legislators, including Senator Natasha von Imhof, point out that if we do not pay any more Permanent Fund Dividends (PFDs) we will have a balanced budget. In her mind, if we can give up this annual “handout” Alaskans can continue to live the dream and remain the only state in the nation without a statewide sales or income tax.
Some legislators who represent lower income Alaskans and rural districts take a different stance. They view the PFD as an important measure to provide support to those living in poverty; notwithstanding the fact that the PFD is not means-tested. Everyone gets a PFD regardless of how much they make.
Legislators with a keen fiscal eye, such as Senator Bert Stedman, believe that people expect some level of PFD but a traditional full PFD is unaffordable, especially considering that we have exhausted our savings accounts to the tune of $17 billion since 2013. We simply do not have sufficient resources to pay a full PFD and provide for the level of government we have become accustomed to. Under the statutory formula the PFD has grown by a factor of 3.4 since 2012, from $878.00 in 2012 to $3,000.00 estimated for 2021 and 2022. At the same time, state oil revenues have fallen 90%, from $8.9 billion to $800 million.
Others claim we can cut enough to fund full PFD. To some extent, they have a point. We are a state of outliers. We have the highest Medicaid eligibility and per recipient cost in the nation. The state funds 75% of public education costs while other states only fund 50%, leaving the rest to local government. Our state employees are more generously compensated than in other states (Bureau of Labor statistics claim that the average state government employee wage in the US is $58,360; that figure is $74,672 for Alaskans). But a $2.0 billion reduction would equate to only 47% of the budget. Recall the trauma of the 2019 session, when massive cuts were met with constituent resistance and virtually all cuts were rescinded in subsequent budgets.
The problem is inherently political. Election after election we’ve seen legislators’ campaign on full PFDs, and voters have rewarded them at the polls. None of the camps listed above have enough of a majority to take action. So maybe it’s time for a compromise to make everyone a little happy.
The Legislature should fund a massive one-time, $10,000 PFD then repeal the program entirely. Giving all Alaskans a PFD of $10,000 per person would require $6.4 billion to be taken out of the Permanent Fund. Taking that money would reduce the Percent of Market Value (POMV) draw from the permanent fund by about $300 million per year, while at the same time eliminate an annual $2.0 billion for dividends. This would result in a net improvement of the state’s fiscal situation of $1.7 billion. The net effect of is that our budget would move from balancing at $105/bbl oil to 50/bbl. Alaska Crude oil is currently selling at $56.47. Only modest reductions or revenues would be required to bring us into balance after this maneuver.
The best part of this proposal is that everyone gets a little something. The full PFD camp can go back to their constituents proudly and show that they’ve secured over three years of full PFDs and that they have bought time – time to cut the budget so that the program can come back in some form the future.
Those wanting to avoid new taxes in Alaska can get their way too. They can show that we can go another 40 years until we have to engage in another discussion of new major revenues.
Those clamoring for support of low-income Alaskans too can proudly say that the solution avoids further discussion of major reductions to the welfare programs that they rely on, and provides opportunity for those living in poverty to use their PFD to better themselves.
This solution is not just a feasible political compromise, but also an effective stimulus measure. Giving all Alaskans $10,000 in the midst of a global pandemic can help ease the crisis, help people get ahead on bills, and stimulate spending in our local economy.
The alternative to such a solution has the state draining its remaining savings and then choosing between $0.00 PFDs and overdrawing the Permanent Fund on an ongoing basis, forcing the fund to manage more conservatively for unexpected draws. I for one think we should act now rather than continue to kick the can down the road and suffering the consequences.
The author of this community voice wishes to remain anonymous.