Yes, there is a way to protect the annual Permanent Fund dividend, and help balance state government at the same time.
The recent drop in oil prices has accelerated the existing problems the state of Alaska has been facing for a while, which is our dependence on a single source of revenue, as well as an unsustainable annual state budget. This is both a fiscal and a political challenge.
The annual dividend is a vital source of cash for many residents in Alaska, and many politicians are hesitant to touch it. But according to the Alaska Permanent Fund Financial History and Projections as of April 30, for the past five years the fund has generated returns in excess of what is paid out in dividends and inflation-proofing. Currently, that excess of about $6 billion in actual accumulated gains, sits in the earnings reserve and it's available to the Legislature to spend on any public purpose.
Our state is at a fiscal crossroads, and it's worth discussing all our options. Moving money from the earnings reserve into the Permanent Fund's principal can lock it away indefinitely, which limits our future options and may cause us to spend our Constitutional Budget Reserve quicker than necessary. We will always need the CBR to act as a shock absorber during the inevitable period of low oil prices. Draining it removes that measure of financial security.
Perhaps a better approach would be to use the Permanent Fund earnings reserve for one or two years to help cover the state budget and simultaneously engage in community conversations where everyone collectively discusses the magnitude of our budget challenges. This takes time to do it right, and the earnings reserve buys us that time.
The bottom line is, we have a very large state budget and no way to pay for all of it. At this point, Alaskans have three choices:
A practical solution will most likely involve all three working in tandem.
For the next couple of years, Alaskans can continue to receive their annual dividend at historic levels, and at the same time, the fund's earnings reserve can be used as a stop gap to buy time for the Legislature and governor to prioritize spending and decrease the state budget, as well as explore new sources of revenue. Then, we can reassess in 2017 and decide whether it makes sense to continue using the earnings reserve to help balance the budget.
Maybe two years from now everyone will still receive an annual dividend, but then turn around and pay a state income tax. While dividends are a wonderful cash windfall each October, I ask you this, what good is an annual dividend if there aren't any airports, schools, roads, Alaska State Troopers and village public safety officers, or medical care for people?
Natasha Von Imhof is a lifelong Alaskan who takes an active interest in politics and hopes to help shape policy to secure our state's economic future.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.