Rep. Grier Hopkins is calling for oil and gas royalties to directly fund annual dividends to Alaskans, in addition to earnings from the state’s $72 billion sovereign wealth fund.
The Fairbanks Democrat has submitted a package of proposals that outline his fiscal vision for Alaska.
Under Hopkins’ plan, future dividend payments would comprise “a blend” of Permanent Fund earnings with royalty revenues from Alaska’s oil and gas resources. The dividend payment never before has come directly from oil and gas payments but rather from a percentage of earnings from Alaska’s sovereign wealth fund.
Hopkins has submitted a package of bills and proposed changes to the state Constitution that would facilitate the change. His legislation aims to protect the Permanent Fund dividend in the state Constitution and guarantee a dividend shall be paid without specifying a formula to calculate the amount.
“My bill says that whatever is written in law, the Legislature will pay,” Hopkins said.
Based on long-term projections for the Permanent Fund and predictions for oil prices and production, Hopkins said that the dividend payment would be roughly $1,090 in 2022. The estimate for 2023 is more than $1,500, he said. If current projections hold, Hopkins said that the dividend would likely rise to more than $2,000 in 2024.
‘Necessary to protect the dividend’
Hopkins said his plan would be implemented in a stepped approach over several years.
Starting July 1, 2022, dividend payments would be calculated based on earnings from Alaska’s Permanent Fund plus a percentage of oil and gas royalties, rents and bonuses.
In the first year, the dividend would represent 10% of Permanent Fund earnings and 35% of oil and gas royalties.
The formula would gradually increase to 25% of wealth fund earnings and 50% of oil and gas royalties. The remainder would pay for state services.
Oil and gas production in Alaska is on a long-term decline that is expected to continue as the nation moves away from fossil fuels toward adoption of electric vehicles.
In the Legislature, there is discord each year on the dividend amount.
“For us to find a long-term fiscal plan solution, it is necessary to protect the dividend and earnings,” Hopkins said.
“One of the goals of using oil and gas royalties is to incentivize oil production on the North Slope, boosting Alaska’s economy and the dividend simultaneously,” he said.
Hopkins: More diverse funding
Currently, a quarter of gas and oil royalties by state Constitution goes into the Permanent Fund, the state’s sovereign wealth fund; the remainder pays for state services.
“My plan has a portion of the earnings reserve [from the Permanent Fund] going to pay the dividend, but it combines that with a portion of oil royalties that previously went directly into the general fund,” Hopkins said.
“This is a much more diverse source for funding, which gives Alaska more reliability and sustainability in funding sources,” he said.
Hopkins said his dividend plan will better reflect the health of the state economy. When oil prices go up, Alaskans will see a higher dividend. But when the prices drop, the dividend will reflect that.
In the second year of Hopkins’ plan, a budget deficit would be created if state spending for operations stays the same. The projected spending gap would require the Legislature to cut state services and/or raise taxes.
“We can always find efficiencies in the budget here and there, but I do not support substantial cuts,” Hopkins said.
His proposal is similar to the so-called 50-50 plan offered by Gov. Mike Dunleavy, which is under consideration by lawmakers in special session.
But Hopkins said that his plan creates a much smaller budget gap than the governor’s proposal. “Mine starts lower and ends at the same level, while the governor’s starts high and stays there,” he said.
Hopkins also proposes a spending cap that puts political pressure on lawmakers to set limits.
“With any surplus, half goes into a savings account and half goes to increase the size of the dividend,” he said.
He said that approach encourages lawmakers not to spend every dollar that comes in.
“Let’s pay off our debts, so the money will be available for future downturns as needed,” Hopkins said.
Curiosity and interest
“I want to see someone else meet me halfway and bring revenue to the table,” he said, referring to current discussions on tax proposals, including a state sales tax.
Hopkins said he does not expect major fiscal reforms will be adopted during the fourth special session. But he said that his proposals and others start the conversation.
Hopkins is among lawmakers who have introduced fiscal policies that are expected to receive further deliberation when the Legislature convenes for its regular session in January 2022.
Meanwhile, Hopkins is talking with lawmakers about his proposal. He said that legislators are expressing “curiosity” and “interest.”
“By combining the earnings of the Permanent Fund with a percentage of Alaska’s oil and gas mineral revenues, Alaskans will benefit from a diversified dividend revenue stream, shielding the dividend from market downturns and commodity price fluctuations,” Hopkins said in a recent House Ways and Means committee hearing.
“Additionally, Alaskans will see a direct benefit from the continued development of resources on state and federal land,” Hopkins said, “renewing the founders’ vision of an owner state.”