News-Miner opinion: Gov. Mike Dunleavy’s decision to relent on his demand for a $3,000 Alaska Permanent Fund dividend this year has no doubt upset his supporters.
But it was the right decision. And, really, it was the only decision.
Alaska’s difficult financial situation, the breadth of the strong opposition to the governor’s extensive budget vetoes, and the lack of support in the Legislature brought an end to one of the governor’s signature campaign promises — to pay out the full amount of a dividend this year in accordance with the formula set out in state law.
Alaska simply could not afford it. And we won’t be able to afford it in the future, either.
Paying out a $3,000 dividend this year would have cost the state $1.9 billion. The projected state budget deficit for fiscal 2020 at the start of the budget process? $1.6 billion. To help pay the $3,000 dividend, as well as to eliminate the deficit, the governor had proposed massive budget cuts but no substantial new revenue.
Paying for a dividend of that size would draw too heavily from the fund’s Earnings Reserve Account, potentially bringing closer the year in which the account wouldn’t have the money to pay out any dividend at all under the current formula.
Alaskans are now looking at receiving a $1,600 dividend this year, a reasonable and affordable amount. Yes, the lower amount will mark the fourth consecutive year that the statutory PFD formula has not been adhered to. But that is the reality of our state’s fiscal situation — a situation that, we must remember, could still be the envy of most other states because Alaska has no statewide personal sales or income tax.
So now what?
The dividend calculation formula is increasingly seen as needing to be changed.
Here’s how it works now, straight from the Permanent Fund Dividend Division: “The dividend calculation is based on the number of eligible Alaskan applicants in a dividend year and half of the statutory net income averaged over the five most recent fiscal years.”
The payment comes from the Earnings Reserve Account, which contained $12.55 billion in realized and unrealized earnings as of June 30, the end of the 2019 fiscal year. The Legislature, however, voted to move $10 billion from that account into the fund’s constitutionally protected principal in fiscal 2020, which will, after payment of this year’s $1,600 dividend, leave little in the reserve.
The budding problem is that some of the permanent fund’s earnings now need to be used to help pay the cost of running the government because oil revenue — the main source of state income — has been in decline. The Earnings Reserve Account would dry up fairly rapidly if it has to be used to pay out a larger dividend called for by the formula as well as provide funds so the government can function at a level that a majority of Alaskans want. Just what level of government Alaskans want, of course, is the subject of much debate and protest.
The formula must change.
Gov. Dunleavy said in a recorded message to Alaskans last week that he will call the Legislature into a third special session later this year for the single purpose of providing funds to make whole what he calls “an incomplete dividend.”
The Legislature should take the opportunity of that special session to revise the dividend calculation formula to ensure that Alaskans can benefit from the program for years to come.