Without the dividend, the Permanent Fund won’t be permanent

Gov. Mike Dunleavy’s proposed budget for the next fiscal year includes payment of a “full” Permanent Fund dividend based on the statutory formula that has been ignored by legislators for the past several years. Judging from the reactions of some legislators, you’d think the governor was proposing to spend like a drunken sailor. There’s some rich irony here, as many of the same lawmakers were harshly critical of Gov. Dunleavy’s first-year budget cuts. But whether you love or hate this governor’s budget strategy, that’s a separate question from whether he should follow the law on paying the PFD.

On the budget, there really are only three long-term ways to make it balance. Some want to pursue spending cuts alone. Others want to do it through tax hikes alone. Some (like me) want to do both. I don’t count “spending from savings” as a long-term option, because obviously that well is destined to run dry, sooner or later.

Here’s the problem: Too many legislators think they’ve discovered a “fourth option” for balancing the budget, allowing them to dodge a political bullet. The easy path, they think, is to loot your Permanent Fund dividend. Yet this choice is not different from the three options that were always on the table. Capping the PFD is just a tax increase that disguises itself as spending restraint. To understand why this is true, we must look to the original intent of the PFD.

During the 1970s, I worked with Gov. Jay Hammond and others to help create the Permanent Fund. Gov. Hammond believed the best way to protect the fund from spendthrift politicians was to ensure that the owners of the Permanent Fund—the Alaskan people—received an annual dividend payment based on the fund’s earnings.

Over the years, the PFD amount went up and down. In 1985, it was $404. By 2000, it had risen to $1,963. In 2005, it fell to $845. By 2008, it had jumped to $2,069. Yet I never heard people complain when their dividend was lower than the previous year. That’s because Alaskans understood what the PFD was — their earnings share from an investment account owned in common by the people.

Starting with Gov. Bill Walker’s PFD veto in 2016, the annual dividend has been “decoupled” from the fund earnings. It has now become a political football, with politicians haggling about the amount every year. Instead of making our budget problems easier to solve, raiding the PFD has resulted in a massive loss of trust between Alaskans and their elected leaders.

When politicians set an arbitrary cap on the PFD, they are simply taking money that is lawfully due to Alaskans and using it for government instead. That’s a tax increase. But among the many kinds of taxes one might impose, hijacking the PFD is the worst choice.

First, a PFD tax affects every man, woman and child in Alaska—but no one else pays a cent. A sales tax would collect revenue from non-residents (visitors) to help pay for government. An income tax would collect revenue from non-residents who make a good living working in Alaska-based industries. But the PFD tax burden falls exclusively on Alaskans.

Second, while the PFD cap works as a de facto tax, it’s not a formal tax like a sales tax or income tax. Those taxes you could at least deduct on your federal tax return. But the PFD tax is 100 percent out-of-pocket for you.

Third, while I like the idea that everyone should pay something for government, can we admit that a PFD tax is the most outrageously regressive tax concocted by anyone? This year’s PFD tax from the Legislature slashed $1,400 from every man, woman and child in Alaska. A millionaire in Anchorage loses $1,400, and so does a widow in Emmonak. But the pain isn’t shared equally.

Reasonable people can disagree about how to solve our budget dilemma. But I give Gov. Dunleavy high marks for honoring the law and for rejecting the disastrous tactic of stealing Alaskans’ PFDs. Quite often, the easiest solution for solving a problem in the short-run turns out to be the worst solution in the long-run.

Clem Tillion is a retired commercial fisherman and a nine-term former Alaska state legislator. He is a charter member and past chairman of the North Pacific Fisheries Management Council and has served on numerous government fisheries regulation councils and committees. He lives in Halibut Cove, near Homer, Alaska.

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