Not Even Alaska Gets It Right

[Bad link fixed.]

Alaskans Consider Tapping Fund for Bills

The Alaska Permanent Fund, created in 1976 to capture a share of the state's vast oil wealth, has grown to $27.7 billion, a sum so large its earnings underwrite handsome checks for every state resident.

But Alaska is running out of revenue to pay its bills, and Republican Gov. Frank Murkowski has raised the sensitive question of whether residents should trade part of their dividends for schools, police and roads.

There's a huge jumble of issues here, but most can be boiled down to a few simple things.

A group of 55 residents summoned by Murkowski as the "Conference of Alaskans" meets next week to decide if the state's most sacred cash cow should be sliced up to help pay for state government.

"We are threatened with an erosion of essential public services," Murkowski said in his State of the State speech last month. "Alaskans need to consider the health of our society in terms of both the dividends they receive and shared services."

The Permanent Fund Dividend currently has an unaudited amount of $27,850,200,000 and is under the administration of the Alaska Permanent Fund Corporation. Since the Fund's principle ($24.1 billion as of 6/30/2003) cannot be spent, only it's earnings are eligible for distribution to residents.

What makes up the Fund? "Dedicated mineral revenues," "special appropriations," "inflation proofing," and the interest made on the investments made with that money.

ALASKA LAWS
PERTAINING TO THE PERMANENT FUND

Article 01. ALASKA PERMANENT FUND.
Sec. 37.13.010. Alaska permanent fund.

(a) Under art. IX, sec. 15, of the state constitution, there is established as a separate fund the Alaska permanent fund. The Alaska permanent fund consists of

(1) 25 percent of all mineral lease rentals, royalties, royalty sale proceeds, net profit shares under AS 38.05.180 (f) and (g), 25 percent of federal mineral revenue sharing payments received by the state from mineral leases, and 25 percent of all bonuses received by the state from mineral leases; and

(2) any other money appropriated to or otherwise allocated by law or former law to the Alaska permanent fund.

So. Money skimmed off the top of private interests (otherwise known as the abovementioned) is diverted from regular state funds and saved in the APF. This money is augmented through appropriations from the Alaskan Legislature (billions of dollars so far) and these either take the name of allocations or inflation-proofing. Either way, it's still taxpayer money being spent.

The program's been active for decades, so you can expect there to be some resistence to change.

Twenty-seven years after the first North Slope crude oil flowed through the trans-Alaska pipeline, the state still gets more than 80 percent of its general fund revenue from oil taxes and sales of its share of oil pumped from the ground. Revenue from tourism, fishing and mining are small fractions in comparison.

Alaska's residents pay no state income tax, no state sales tax, and in the state's two largest cities, Anchorage and Fairbanks, not even a municipal sales tax.

But cutting their dividends, paid since 1982 and ranging from $331.29 to a high of $1963.86 in 2000, will not be an easy sell.

Alaskans pride themselves on their rugged individualism, but have reacted strongly to the threat of losing a collective source of wealth that many view as an entitlement.

The entitlement mentality. It's hard to not sympathize, but I can't. Even considering Alaska's unique circumstances, I view the whole APF as unnecessary.

Families sock the checks away for their children's education or buy plane tickets to visit grandparents in the Lower 48. In the subsistence economy of rural Alaska, where jobs that pay cash are rare, the annual checks are precious. And for a segment of Alaska's population that considers state government to be bloated, the idea of cutting off checks to pay for more services brings opposition that borders on religious fervor.

There's a disconnect here. The 2004 state department fiscal summary (PDF) shows that the two single biggest spending items in the budget are Health & Social Services (1,444,020) and Education & Early Development (976,935) and since it isn't mentioned, I'm assuming these figures are in millions of dollars.

Reviewing this document and the department summary (PDF) shows that most areas of spending have had cuts when you compare 2003's actual spending vs. 2004's authorized spending. Good for them. Now they just need to take it further.

But back to the APF.

In an advisory vote in 1999, 84 percent of Alaskans said no to using the permanent fund to help support state government.

"We think the permanent fund is the last thing the Legislature goes after, not the first thing," said Eddie Burke, state chairman of Alaskans, Just Say No, which opposed the measure in 1999 and will fight a ballot measure this year.

The Alaska Legislature does not need a referendum to spend the fund's earnings, but the advisory vote so cowed politicians, they have dared not do so.

If only things other than getting toss out of office cowed politicians as greatly as this. Things like honoring personal liberty.

In 10 of the past 12 years, state government spent more than it earned outside the fund. A Department of Revenue in December estimated that gap this year at $275 million. The gap has been filled by withdrawing money from an account called the Constitutional Budget Reserve, created by voters in 1990 to hold oil and gas tax and royalty settlements from oil companies. Without change, that fund is projected to run dry by 2007.

Murkowski limited his new revenue options during his campaign by saying he would not spend permanent fund income without a vote by Alaskans. He also promised to reject a state income tax. The former U.S. senator instead said the budget could be balanced with cuts and increases in revenue from additional resource development.

He was elected with a 56-percent majority. The optimistic scenario has not come true.

Here's what the problem is.

The state exists to serve all it's citizens, right? It's here for the Good of All. Yet it must Infringe Upon All before it can serve anyone. It has to redistribute wealth from private interests to the public sector before anyone can get their state benefits. It's a contradiction and an extremely wasteful one. It's even worse in most cases because the load placed on the public isn't even or equal. Businesses and the rich get saddled with the greater burdens of paying for public services, usually because "they can afford it."

But liquidating the Alaska Permanent Fund would almost certainly mean a tax increase or outright imposition in order to pay for the lower classes who rely on those Fund dividends to survive. Social spending would have to increase due to public pressure and the government would have little choice but to tax something.

Significant new revenue from more oil fields, mines or a proposed natural gas pipeline is probably a decade away. Murkowski's first year in office followed five years of budget cutting by the Republican-controlled Legislature. He slashed $250 million from the budget approved by the Legislature but warns of Draconian cuts next year in the absence of tapping the permanent fund.

Go Draconian! Reinvigorate personal responsibility!

Murkowski said that barring off-the-wall suggestions, he will follow the suggestions of the Conference of Alaskans meeting at the Fairbanks campus of the University of Alaska for three days, starting Tuesday.

The group is a mix of businessmen, former legislators, municipal officials and civic leaders. A dozen delegates have connections to Alaska Native organizations. A few have little more on their resume than long years of residency.

Dennis McMillian, a former Anchorage United Way executive director who was selected as a delegate, said he's interested in finding a long-term solution for the state's fiscal problems and that may involve using part of the permanent fund. But given the diverse lineup of delegates, agreement will not be a slam dunk, he said.

"I think it's going to be a challenge finding consensus of what should happen," McMillian said.

Copyright 2004 The Associated Press. All rights reserved.

The trouble is leaving this up to democratic means and solutions, but don't look to find that addressed anytime soon.

Posted by Drizzten at February 10, 2004 12:56 PM