OPINION: Alaska's 'owner state' model and its Permanent Fund are under attack

Gov. Walter Hickel had a great vision — that Alaska’s natural resources be owned in common and be developed in a sustainable way for the maximum benefit of both current and future generations. He believed this “owner state” model could be spread across the world from Alaska to help eliminate poverty. Today, a key pillar of this model, the Permanent Fund, is under attack. As our Legislature wraps up its business, here are some points about Alaska’s endowment we should consider.

Alaska’s natural resources are here for everybody’s benefit. In exchange for the privilege of developing our resources, we agreed private companies are entitled to a reasonable profit. The people benefit through royalties and taxes on resource development paid to the state. The Fund converts our non-renewable oil into sustainable wealth for all generations. Only 25% of state royalties go into the Fund. No other taxes collected on oil production go into the Fund, meaning that the majority of overall oil revenue (80-90%) is used to pay for public services.

Historically, the Fund has paid only for dividends and inflation-proofing. Starting in 2017, we began to use the Fund to pay for public services. Since then, Alaska has limited annual withdrawals for dividends and public services to a “sustainable” percentage of the Fund’s overall value (5% of the five-year rolling average). Exceeding that limit, which some lawmakers are now considering, will weaken the fund and eventually result in lower Permanent Fund dividends, less growth for the Permanent Fund, and less money to support public services.

To protect and grow the Permanent Fund endowment, both long-term and short-term actions are needed.

The long-term solution is a constitutional amendment placing a hard limit on spending from the Fund. This would change the Permanent Fund’s current structure of an Earnings Reserve Account separate from the Fund’s principal and adopt one similar to other large endowments. The Earnings Reserve Account is not protected from excessive draws and should be rolled into the Fund’s principal to protect its value. A consistent recommendation of the Alaska Permanent Fund Corporation for years, it has never been put to the public for a vote. Failing to do so has profound consequences for the future of Alaska. Over the past decade, the Legislature has spent tens of billions of dollars from other non-Earnings Reserve Account savings.

In the short term, our Legislature should exercise discipline by adhering to the 5% spending limit and maintaining the real value of the constitutionally protected portion of the Fund through inflation-proofing.

As the contributions of oil shrink and the Fund cannot meet both the public desire for dividends and public service spending, we should be building the Fund up, not spending it down. Today, the $78 billion Fund supports a significant portion of state spending. But a $150 billion Fund could potentially endow most of Alaska’s public services forever — something no state has ever achieved. That is a dream worth pursuing.

A collective unwillingness to adopt realistic long-term solutions to our financial problems will affect all of us. Changes that would help Alaska live up to its fullest potential include:

• Spend less: Adopt a more conservative spending limit of 3-4% of the Fund’s value. This is consistent with most other endowments around the world.

• Save more: Additional resource royalties and taxes could be put into the Fund, including from minerals and fisheries, as well as other state-owned natural resources.

• Diversify revenue: Generate additional revenue, such as an income tax or sales tax, or changes to corporate taxes.

Alaska’s future is being decided today. If we do not protect the Permanent Fund, we will regret it forever. We have struggles to overcome, but it is no excuse to steal from the modest inheritance of all future generations.

Gov. Hickel believed the owner state was the model and beacon of hope to the world. We can save that model and continue to be a beacon by strengthening our Permanent Fund. If the commonly owned resources of this world were used for the maximum benefit of all the people, there would be no legitimate reason for poverty. We would be standing on the threshold of a new world.

Jack Hickel, Jon Isaacs, Tom Barrett, Scott Kendall and Yngvil Vatn Gattu serve on the board of the Institute of the North. They are committed to advocating for management of commonly owned land and resources for the maximum benefit of current and future generations.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.