The major reduction in oil revenue that we are currently experiencing is a major blessing in disguise. We now have the opportunity to correct the very substantial excesses of the past 35-plus years. We can and should do so without reducing the dividend or imposing new taxes!
I recently had the opportunity to listen to and evaluate the wisest, best researched and most realistic approach to the solution of Alaska’s Fiscal Crisis presented by Brad Keithley of Alaskans for Sustainable Budgets and strongly recommend all Alaskans and particularly legislators and policymakers carefully evaluate his work. He presents a plan that puts average Alaskans first, lets them keep their dividend and does not impose any new taxes. He graphically and accurately illustrates how keeping these dollars in the pockets of all Alaskans to spend as they see fit creates a much healthier Alaskan economy than taking those dollars away and giving them to the government sector to spend. Reducing or eliminating the dividend or imposing new taxes does not create new revenue, it simply takes money out of one segment of the economy and gives it to another. In this case from the people in general, the private sector, versus those in the public sector.
Brad presents more realistic resource revenue and production projections and also points out that there is another $9 billion savings account, the Earnings Reserve Account that was established for just this purpose and that the legislature can and should utilize. The excess earnings of the permanent fund after providing for the dividend could and should be used to assist in balancing the budget. His overall plan shows the state and the people weathering this downturn in oil revenue and will be back in the black in about five years with a much more realistic and sustainable budget going forward.
It is also imperative that an effective spending cap be imposed, first statutorily to get it on the books quickly and have the current legislature on record supporting it and secondly the legislature should also propose a spending limiting constitutional amendment for the people to consider, and hopefully pass as early as possible. Our problem has always been a spending problem not a revenue problem. Jay Hammond and I may not have agreed on the repeal of the income tax but we did agree that the only way to put the brakes on the legislature’s addiction to spending was to take the money off the table. Keeping the dividend and not re-imposing a tax does exactly that.
I think it’s prudent to point out that Alaska unlike most other petroleum producing states is unique. There are two sources of direct revenue from this activity, severance Taxes which rightly go to the state governments and Royalty Income, 12 ½ percent that normally goes to the private property owner. Alaska’s Constitution prohibits private ownership of subsurface wealth therefore all of this royalty income also goes directly to the state and not thousands of private landholders. To attempt to at least partially correct this situation the permanent fund and dividend were established. Since there was not and is not a need for an income tax it was abolished. A case can be made that since the state collects the total royalty income that in other states goes to individuals that we Alaskans are in fact the highest taxed Americans.
To compare our situation as citizens of Alaska to a Texan who owns property producing oil, consider the following. Our permanent fund was constitutionally created requiring that at least 25 percent of the royalty income be dedicated to it so that is 25 percent of 12 ½ percent of the value of the oil or slightly over 3 percent of the oil’s value. The dividend is calculated by sharing one half of the earnings of the permanent fund averaged over five years divided by the number of qualified recipients that year. This is a pretty meager amount of dollars going into our private economy compared to the total 12 ½ percent of the royalty in other states supporting the private sector economy. Without the permanent fund and the dividend Alaska would more resemble the Middle East Emirates then a member state of the United States.
In a properly functioning free-market economy it is not the governments function to provide an economy, it is their responsibility to provide essential services and to do so as effectively and efficiently as possible. Since the advent of literally hundreds of billions of unearned dollars pouring into the Alaska economy the public/political sector, which has first call on those dollars, has grown topsy-turvy with little if any consideration to efficiency or effectiveness in many cases. This reduction of that income gives the current residence of Alaska an opportunity to rethink our priorities and the kind of Alaska culture we want going forward. The degree to which we can privatize and diversify the economy will to a large extent define that future. I wish our current leaders wisdom in their responsibility to lead!
Dick Randolph served in the Alaska Legislature as a Republican and Libertarian. He lives in Fairbanks.