Hammond to Legislature: Back off PFDs

Posted: Monday, January 28, 2002

HOMER -- Former Gov. Jay Hammond doesn't think much of the proposals floating around Juneau that would help span the state's billion-dollar fiscal gap by capping Alaskans' permanent fund dividends.

"I'm totally opposed to it," he said last Tuesday, drawing nods of agreement from a crowd of people at The Homer Bookstore there to have him sign copies of his new book, "Chips from the Chopping Block: More Tales from Alaska's Bush Rat Governor."

If Gov. Tony Knowles' proposed new income tax were imposed, Hammond said, it would cost a typical family of four $1,150 per year. If the permanent fund dividend were capped at $1,250, as others have proposed, it would cost that same family about $2,400.

"It's incredibly harsher to cap the dividend," said the longtime Lake Clark resident. "Why this stuff is so difficult to understand is beyond me."

Hammond is generally credited as the godfather of the Alaska Permanent Fund, promoting the idea since North Slope oil revenue began to flow into the state treasury in 1969. When he became governor in 1974, he proposed creating "Alaska Inc.," which would receive half of all natural resource revenues, invest them and return half the earnings to all Alaskans in the form of stock, with each resident getting one share for each year of state residency.

After the Alaska Legislature watered it down -- in part to make the fund easier to tap -- Hammond vetoed his own idea. In 1976, a new version, called the Alaska Permanent Fund, was put to voters as a constitutional amendment. It, too, set aside a portion of state oil revenues for investment purposes and allowed the fund's earnings to be spent by the Legislature, but the fund itself was protected from tapping without statewide approval.

Originally it contained no provision for dividends, which Hammond thought was a key element. Without dividends, people wouldn't pay attention to how the fund was managed or whether it was growing, he said.

"Today, most Alaskans recognize that without the dividend program, the billions now invested in the permanent fund would have long since been squandered," he wrote in his first book, "Tales of Alaska's Bush Rat Governor."

"To put it crudely, the dividend program pits 'collective greed' against 'selective greed.' In the process, it serves to curb government spending, enhance the economy and achieve absolute equity in the distribution of what is actually but 1/200th of our oil wealth."

Proposals to cap the permanent fund dividends at $1,250 are among a range of ideas set forth by the bipartisan Fiscal Caucus to help span the fiscal gap -- the difference between income and expenses -- which this year is estimated to be $1 billion. Other measures on the list are an income tax, seasonal statewide sales tax, alcohol and motor fuel tax increases and the like. Hammond said his preference is clear.

"Rather than cap the people's dividends, tax them," he said, and let them use their full dividend to pay whatever additional taxes the state deems necessary.

Alaskans need to feel some ownership in state spending, he added, but that tie was severed when the Legislature abolished the income tax more than 20 years ago. As an added bonus, he said, if an income tax were resumed, "Thirty percent at least will be paid by nonresidents."

He said he prefers a seasonal selective sales tax, an income tax -- possibly capped at the level of that year's dividend checks -- and various user fees to bridge the fiscal gap. He said he also might agree to selective capping of dividend checks, but only under duress.

"I'm not advocating this," he cautioned, but using a portion of children's permanent fund checks to help pay for education is a use that might be considered.

The problem with capping funds to pay for general government services, he said, is that people may lose interest in the permanent fund program, and that could be its death knell.

"Without the dividends, the program would be quickly dissipated," he said.

Some legislators want to establish a constitutional spending limit, which Hammond said he would support if it easily were understood by the average Alaskan. The current Senate proposal is too complicated, he said. Rather, he would tie state spending to the Constitutional Budget Reserve -- the state's easily accessible savings account. If the reserve slipped below, say, $1.5 billion, it would automatically trigger preordained taxes and budget cuts.

To make it fool-proof, Ham-mond joked, "We should suspend legislators' salaries" until the reserve is back in the black. "Now that would be a good constraint."

Joel Gay is a reporter for the Homer News.

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