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Community Perspective

Alaska needs a new way to pay out the PFD

Where’s the crisis? That’s the question we heard at a House Finance Committee town hall in Fairbanks in March, and the question sticks in my head.

The guy looked at our budget chart and observed that if all the items were funded to a decent level, there would be enough left over so that a family of four would receive $4,000 in permanent fund dividends. We can fund our basic services including K-12 education, the university, public safety, public health, ferries, Pioneers’ Homes, etc., and still have enough left over to give every man, woman and child $1,000 in free money. Any other state would be envious.

Don’t forget, we have no broad-based tax in Alaska, such as an income or sales tax.

So, where’s the crisis?

The crisis is that we have an outdated PFD formula that needs revision. The formula is based on Alaska Permanent Fund investment earnings, and it worked well when we had enough oil revenue to pay for the state budget. But that changed a few years ago when oil prices and production fell to levels that left the state searching for funds.

We ended up depleting our savings accounts and, finally, last year the Legislature passed a bill — Senate Bill 26 — that for the first time allowed us to take a structured draw from the permanent fund (5.25% of the total value of the fund annually) and use it to fund public services.

This year the percent of market value — POMV — draw is almost $3 billion and our oil revenue for the same period is about $2 billion. The structured POMV draw brings in more money than oil.

This fact alone is a major paradigm shift. For perspective, in 2012 oil brought in about $8 billion.

Also, SB26 passed with bipartisan support. A mixture of Democrats and Republicans voted for and against it.

Meanwhile, the dividend has been calculated with an outdated formula using the five-year average of its earnings. When the dividend program started, the fund was around $500 million and the first checks were around $300. This year the checks calculated under that formula would be $3,000 — the largest ever.

Right now, the mathematical fact is that the state cannot afford a $3,000 dividend on a regular basis; it’s simply not sustainable and it will only get larger in the future, so we’ll run out of funds even sooner. In the past, permanent fund earnings paid the dividend and oil revenues funded public services. The system worked pretty well. Alaskans had a fully funded budget and everyone got a dividend averaging about $1,100 since the beginning.

But oil alone can’t fund the services. We need to make a change.

I believe the dividend should be linked more closely to our main resource, oil, than to Wall Street. Most people think it’s an “oil check” anyway.

My House Bill 132 uses annual oil revenues for calculating the dividend instead of permanent fund earnings. This will accomplish several things. When oil prices or production are high, the dividend will be higher and will help offset Alaskans’ higher energy costs. If oil prices or production drop in the future, the state won’t be obligated to pay a large dividend it can’t afford.

It will also increase our awareness of oil prices, production and oil taxes — the state’s largest industry. This will link the dividend directly to our subsurface mineral rights, which was the original intent in the first place. If we have a good year, we get a higher check; if we have a bad year, we get a smaller check, much like a Fortune 500 company pays its shareholders dividends.

I know many people support a “full” dividend, but many people support “full” services and have said they’d take a lower dividend in order to preserve those services. I also know Gov. Mike Dunleavy got elected with a campaign pledge of a full dividend. But I’d suggest it may have been partly due to the temporary distraction of a three-way race and that many issues weren’t fully vetted.

I suggest a full dividend isn’t the No. 1 issue for the majority of Alaskans, as crazy as that sounds.

Many politicians feel the need to support a “full” dividend to get re-elected, but it isn’t fiscally responsible. We need to do what’s best for the state in the long run and not only think about the next election cycle.

It’s time to take care of the dividend political crisis and move forward with a sustainable, responsible budget that includes a dividend, now and into the long-term future.

Rep. Adam Wool is a Democrat representing House District 5, which includes West Fairbanks and the Chena Ridge area.

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