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Stop Pebble Now

What were the original arguments for Permanent Fund Dividends?

This is the first in a series of opinion pieces on the Permanent Fund Dividend by Cliff Groh. This one sets out the original rationales when the Permanent Fund Dividend was created in 1982.

I was the legislative assistant who worked the most on the bill that created the Permanent Fund Dividend in 1982. Advocates of the Dividend offered essentially five rationales during consideration of the legislation that put in place the “equal payments for all” program we have today. The per capita Dividend adopted in 1982 was the result of a bill that served as a backup – or backstop – for the original “the longer you’re here, the more you get” Dividend created by a law passed in 1980 – which quickly became stalled in litigation. The Alaska Legislature passed the bill providing for the per capita Dividend as a backstop 11 days before the U.S. Supreme Court struck down the original Dividend bill as unconstitutional, and so the first Dividends were paid in the summer of 1982 under the backstop bill.

The five arguments for per capita Dividends made at the creation were:

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  1. Paying Dividends out of the Permanent Fund’s income or earnings would build a political constituency to protect the Permanent Fund’s principal against raids by special interests. The logic – the bigger the Permanent Fund, the bigger the Permanent Fund Dividend. A variant of this argument was that the Dividend would strengthen political opposition to pork-barrel spending and budgetary hypergrowth.
  2. Paying Dividends would provide greater economic “bang for the buck” than spending the same amount of money on the operating budget, capital projects, or loans to residents. A related argument was that compared to the alternatives, Dividends would more efficiently allocate the surplus oil money coming into the State of Alaska’s coffers in the early 1980s.
  3. Individuals have a right to use a portion of their oil wealth. This argument’s supporters pointed to the Alaska Constitution’s statement that, “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.” Legislators recognized this individual entitlement to State-owned natural resources by adopting findings to the 1980 Dividend bill stating that the legislation “fairly compensates each state resident for his equitable ownership of the state’s natural resources….” (The legislation in 1982 that created the per capita Dividend we have today had no findings, however, as some legislators considered such philosophical statements too controversial to include in the bill.)
  4. Permanent Fund Dividends would deliver benefits more equitably than alternative uses of the surplus oil money. Governor Jay Hammond – the most important supporter of Dividends – contended that the powerful and well-connected were already benefiting from the State’s oil wealth through special-interest appropriations, often arranged behind closed doors. The repeal of Alaska’s personal income tax in 1980 further tilted benefits towards higher-income people, some of whom were non-residents. The State’s highly subsidized loan programs were also cited as examples of inequitable distribution. As I noted in a document circulated in the Legislature during the 1982 session, per capita Dividends by contrast “treat all Alaskans alike – whether they are rich or poor, or whether their home is Adak or Anchorage.”
  5. Universal direct distribution of a portion of the Permanent Fund’s income would fortify the safety net for low-income Alaskans. Hammond never thought much of this argument, but legislators concerned over what seemed to them a possible perverse effect inserted “hold harmless” provisions in the 1982 legislation authorizing use of the State’s General Fund to offset loss of federal means-tested benefits caused by receipt of a Dividend.

Which arguments make sense now?

Cliff Groh has observed and participated in the debates regarding Alaska fiscal policy for almost 40 years. He considers his work on the 1982 Permanent Fund Dividend legislation perhaps his most interesting, challenging, and fun job ever. Some of this material overlaps with a chapter he co-authored with Gregg Erickson for a book published in 2012, one of four chapters Groh has authored or co-authored in academic books about the Permanent Fund Dividend and Alaska fiscal policy.    

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Cathy

Which arguments make sense now? ALL OF THEM

They should have “bagged” the whole thing after the Supreme Court decision or at least had the courage to quit calling it a “dividend” This is no “dividend” under any concept of the word. “Allocation” as that apportioned to a “trust baby” who invested nothing but inherited great wealth would be a more appropriate description. Call it the “PFA”. What we have now is equivalent to issuing every person who feigns interest in the success of General Motors a 1,000 shares at no cost “just to be fair”. And of course they would be “interested” in the annual corporate dividend… Read more »

JOSEPH GELDHOF

Lynn: Very cynical thoughts, although not necessarily disconnected from reality. The thing is, what are we going to do about protecting the PF and embedding a PFD formula in the Alaska Constitution so as to insure that the link between the citizens and their trust fund is maintained?

Joseph, One man’s cynicism is another’s reality. You want to protect the PF (Permanent Fund) then deal with the reality that the earnings are no longer a “nice to have” because we have sufficient revenues from oil and those oil revenues will pay for state services’ therefore we can “hand out” a large percentage of those PF earnings with no serious impact on sustainability. That paradigm has changed forever. We need that Permanent Fund to function as is was intended, that is to provide for all Alaskans when the income from extraction of a non-renewable resource declined. Now we cannot… Read more »

Point of order

You forgot the main one: that Congress stripped us of our mineral and gas rights upon Statehood. You sort of hinted at this with the comment about the State managing the resource for is but you missed this important point. Hammond talked a lot about that. You can go back and read the Congressional act, Gruening’s speeches, and Hammond’s speeches too for that information.