Easy cash can blind us to the long-term costs of the PFD

Much of the budget dysfunction in Alaska that began five years ago is due to the Permanent Fund dividend. At that time, the earnings reserve account of the fund began to be used to pay for both public services and the dividend. It’s a zero-sum game; more of one means less of another. This leads to number of conclusions about the dividend.

The dividend represents a trade-off. Every dollar you spend on dividends is money you cannot spend on something else. These often involve trade-offs between the short-term and the long-term.

Individuals cannot thrive without strong long-term education, health, road and ferry, or justice systems in their community. Communities function by everybody contributing and everybody benefiting. I will not use my dividend to fix a pothole on my street because more people will benefit than I will.

Medical bills you can save from having Medicaid dwarfs the size of a dividend. The income you can receive from work and earnings opportunities that come from sound education, job training programs, treatment for mental illness, or drug and alcohol rehabilitation — this income dwarfs the size of a dividend.

It would be mistaken to think we are living in the best of all possible world now. The Annie E. Casey Foundation publishes a quality of life rating for children each year by state. Last year Alaska came in last, or near last, in every category — health, education, mortality, alcohol and drug abuse, and reading. This is embarrassing, or it should be. These are kids. This is not a product of choices; it’s what life has done to them.

The homelessness situation in Anchorage, relative to what some other states are doing with rehabilitation, is a disgrace. Simultaneously, the current real per-capita budget is one of the lowest since oil began flowing from the North Slope.

The difference between handing out money to people and investing in people is the classic difference between giving someone a fish and teaching someone to fish. The war on poverty in the 1960s reduced poverty drastically by half in three years, through programs like Head Start, Medicaid and food stamps. No one ever suggested giving out money.

While the dividend goes to everyone, wealthier Alaskans don’t need it as much. Their dividends take away from an opportunity help lower-income Alaskans. The amount of dividends last year that went to the wealthiest half of Alaskans, on a daily per capita basis, is about the price of a latte. Surely we can do better than subsidizing the wealthy.

Putting the dividend in the constitution, in times of low revenues or high needs, would diminish essential public services, while the dividend would stay unchanged.

A simultaneous broad-based tax and dividend would be unfair to nonresident workers, such as in tourism or fish processing, who would pay the tax but not receive the dividend. This also sends a poor message to any business contemplating moving here.

Overdrawing the Permanent Fund to pay dividends takes money from future generations. It’s easy to do since they don’t vote. It seems like it’s important to look after them.

In summary, 40 years ago, the dividend made sense. There was much more oil and a much lower population. Fund earnings were not needed for services.

The appeal of giving out money is understandable. But in all other 49 states, and in all other oil sovereign wealth funds around the world, there are no dividends. As the Legislature begins to look at a long-term fiscal plan, it may be time for Alaskans to switch from short-term taking, in exchange for what may have longer-term value.

Roger Marks is an economist in private practice in Anchorage. From 1983-2008, he was an economist with the State of Alaska Department of Revenue Tax Division.

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