The Future of the Permanent Fund
Where it is headed
Alaska’s State Government is running out of money, and the future of the Permanent Fund Dividend is in question.
As the Alaska voters Web site points out, at the end of the last fiscal year, the state had a deficit of nearly $400 million.
The fiscal gap is a result of government expenses exceeding recurring revenues in 10 of the last 12 years. The state government describes this trend as Alaska “living beyond its means.”
Alaska has used funds from the Constitutional Budget Reserve, (a “rainy day fund” created by voters in 1990) along with budget cuts to help cover deficits in the state general fund during the last 12 years. At the current rate of withdrawal, the Office of Management and Budget estimates the CBR fund will be empty by January of 2007, although such predictions have been made before and have turned out to be false.
To close the fiscal gap, Alaska needs a good strategy. According to the online publication Alaska’s Bottom Line, that could include one or more of three options: spending a portion of the Alaska Permanent Fund on government, which could possibly eliminate the dividend; establishing sizable taxes immediately; or making major budget cuts that could possibly trigger a severe recession.
A few years back there was also an idea, put forth in SJR 33, of a lump sum payout of approximately $25,000 per eligible Alaska resident. This would mean there would be no more yearly dividend, and the remainder of the fund from then on would be used strictly for government services. According to Jim Sampson, former chair on the Board of Trustees for the Alaska Permanent Fund Corporation, SJR 33 didn’t even pass the first committee in the legislature. He says if there had been a payout, “That takes care of this generation, but it doesn’t do anything for future generations.” He adds, “The oil wealth belongs to everybody.”
Another suggested solution is a percent-of-market-value spending limit. The Permanent Funds Board of Trustees has set a policy goal, which would earn 8 percent in long-term returns, leaving 3 percent of those earnings in the fund to protect against average inflation. The proposal would limit the payout to up to 5 percent of the funds five-year average market value, which would be available to be spent by the state legislature.
With the institution of the POMV, the Permanent Fund Dividend may have initially smaller payouts, but would gradually grow with the introduction of inflation proofing dollars into the constitution. The Juneau Empire reports, “It will protect the fund from overspending in the good years, while still allowing the option for a payout in the bad years.”
Relating to the POMV is Bill HB 35. Representative Bill Hudson writes that HB 35, “…was introduced to give the Permanent Fund strength, security and stability far into the future, ensuring the commitment to pay dividends to Alaskans, while also allowing that the infrastructure of the state does not fall into further neglect.”
Hudson adds, “If we don’t modify the method for determining Permanent Fund Dividends, if we don’t find new sources for paying for roads, education and public safety and health programs, we will find ourselves the overseers of a weakened and poorer state.”