Voices of Alaska: to save the dividend, a stitch in time saves nine

  • By Scott Hawkins
  • Sunday, April 3, 2016 6:22pm
  • Opinion

Governor Walker’s announcement earlier this week that our state budget crisis has deepened by a further $300 million should galvanize the attention of all Alaskans. Things are getting worse, not better.

We must quickly confront two long overdue questions. How much state government are we willing to pay for, now that we DO have to pay for it? And exactly how do we wish to pay?

As it stands today, March of 2016, we still have some acceptable options to close a gap that amounts to well over $13,000 per household. However, if our state policymakers fail to take some crucial steps, this year, the options get a lot worse. We could end up burning through our available reserves so fast that we put the Permanent Fund Dividend Program in jeopardy along with our state’s overall financial health.

It is important to remember that the Permanent Fund dividend is not protected by our state constitution. Only the Permanent Fund itself is constitutionally protected. The annual earnings of the fund – interest, dividends and capital gains – are deposited into the Earnings Reserve Account and are fair game for any purpose, including but not limited to dividends.

The Fund was created by voters in 1976 as a way to save nonrenewable oil revenue for a “rainy day”. The Alaska Legislature created the dividend program several years later, by statute, but not by constitutional amendment. It can be repealed or altered by a simple majority vote of the Legislature.

Even so, most Alaskans will expect policymakers to somehow preserve the popular dividend. And it IS possible. But it will take some tough choices. To see how tough, go to Plan4Alaska.com, a web tool developed by Alaska’s Rasmuson Foundation, and play around with a few assumptions. It is a very user-friendly tool that strips away the rhetoric and forces some grown-up choices. Or, if you prefer spreadsheets, download the more detailed budget deficit models at AKFuture.org.

In the fiscal plan I created with these tools, using a conservative $40/bbl for oil prices, I was able to balance the budget by cutting state general fund spending nearly 20 percent from 2016 levels, reducing dividends to $1,250, using $1.3 billion in Permanent Fund earnings for general government, imposing a statewide sales tax of 4 percent, a few smaller taxes and fees, and then a relatively modest amount of reserve savings ($500 million).

Whatever your preferred mix of solutions, any reasonably balanced solution will require these core elements, I believe:

— Deep budget cuts. Governor Walker’s proposed 2.5 percent reduction in the operating budget for state agencies next year was way too timid – tone deaf and irresponsible. The agency operating budgets passed recently by the House and Senate, at -6.9 percent and -8.4 percent, respectively, are better, but stronger leadership is needed. For example, the Senate’s move to squirrel an extra $342 million in scarce cash into state retirement funds beyond that required to meet next year’s obligations is rather mystifying. Overall, Alaska has the largest state government in the U.S., per capita, by a wide margin. We can no longer afford that.

— Broad based taxes. We don’t necessarily need both an income and a sales tax, but at least one of the two is needed. I prefer the sales tax, personally, but it would have to have very few exemptions.

— Use of some Permanent Fund earnings for general government.

— Reduced Permanent Fund Dividend. To preserve it we must be less greedy. Dropping from a dividend of over $2,000 to something in the $1,000 to $1,250 range seems reasonable, for now. And that is not far from its average of the past six years.

All of the above is easy enough to say, but will require impressive political courage.

Policymakers will have to face up to the reality that state government is no longer “free” to Alaskans – that some combination of broad taxes, endowment based financial management (such as SB 114) and leaner dividends are inescapable for the latter to be sustained.

That last part is important. The dividend program has become essential to the cash economy of rural Alaska, the college savings accounts of young Alaskans, and is an important part of what makes Alaska unique. Tell your legislator to make the tough choices now, while there is still time.

Scott Hawkins is President and CEO of Advanced Supply Chain International, Chairman of ProsperityAlaska.org, and past President of the Anchorage Economic Development Corp. The opinions expressed are his own.

More in Opinion

Promise garden flowers are assembled for the Walk to End Alzheimer’s at the Soldotna Regional Sports Complex in Soldotna, Alaska, on Saturday, Sept. 16, 2023. (Jake Dye/Peninsula Clarion)
Opinion: Let’s keep momentum in the fight against Alzheimer’s

It’s time to reauthorize these bills to keep up our momentum in the fight to end Alzheimer’s and all other types of Dementia.

Jacquelyn Martin / Associated Press
Sen. Tommy Tuberville, R-Ala., questions Navy Adm. Lisa Franchetti during a Senate Armed Services Committee hearing on Sept. 14 on Capitol Hill.
Opinion: Music to the ears of America’s adversaries

Russia and China have interest in seeing America’s democracy and standing in the world weakened

Dr. Sarah Spencer. (Photo by Maureen Todd and courtesy of Dr. Sarah Spencer)
Opinion: Alaskans needs better access to addiction treatment. Telehealth can help.

I have witnessed firsthand the struggles patients face in accessing addiction care

Former Gov. Frank Murkowski speaks on a range of subjects during an interview with the Juneau Empire in May 2019. (Michael Penn / Juneau Empire File)
Opinion: Need for accounting and legislative oversight of the permanent fund

There is a growing threat to the permanent fund, and it is coming from the trustees themselves

(Juneau Empire File)
Opinion: Imagine the cost of health and happiness if set by prescription drug companies

If you didn’t have heartburn before seeing the price, you will soon — and that requires another prescription

Mike Arnold testifies in opposition to the use of calcium chloride by the Alaska Department of Transportation and Public Facilities on Kenai Peninsula roads during a Kenai Peninsula Borough Assembly meeting on Tuesday, Aug. 2, 2023, in Soldotna, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Kenai Peninsula Votes: Civic actions that carried weight

Watching an impressive display of testimony, going to an event, or one post, can help so many people learn about something they were not even aware of

The Kasilof River is seen from the Kasilof River Recreation Area, July 30, 2019, in Kasilof, Alaska. (Photo by Erin Thompson/Peninsula Clarion)
Opinion: Helicopter fishing a detriment to fish and fishers

Proposal would prohibit helicopter transport for anglers on southern peninsula

The cover of the October 2023 edition of Alaska Economic Trends magazine, a product of the Alaska Department of Labor and Workforce Development. (Image via department website)
Dunleavy administration’s muzzling of teacher pay report is troubling

Alaska Economic Trends is recognized both in Alaska and nationally as an essential tool for understanding Alaska’s unique economy

Image via weseeyou.community
5 tips for creating a culture of caring in our high schools

Our message: No matter what challenges you’re facing, we see you. We support you. And we’re here for you.

The Alaska State Capitol is photographed in Juneau, Alaska. (Clarise Larson/Juneau Empire File)
Opinion: Vance’s bill misguided approach to Middle East crisis

In arguing for her legislation, Vance offers a simplistic, one-dimensional understanding of the conflict

A rainbow appears over downtown as residents check out rows of electric vehicles at Juneau’s EV & E-bike Roundup on Sept. 23. (Clarise Larson / Juneau Empire File)
Opinion: We should all pay more for the privilege of driving

Alaska has the lowest gas tax in the country

Opinion: Sports saves

ASAA has decided to take a vulnerable subgroup of these youth and reinforce that they are different and unwelcome