Speaker calls dividend one of Alaska's worst mistakes

Posted: Tuesday, March 04, 2003

JUNEAU (AP) -- House Speaker Pete Kott said Monday that creating the permanent fund dividend program was one of the worst mistakes Alaska ever made.

The Eagle River Republican does not propose eliminating the dividend because he said it's become an important part of the economy.

But he said the Alaska Permanent Fund, the state's oil-wealth savings account, needs to shift from being a ''sacred cow'' to become a ''cash cow for the state.''

Kott and leaders of the House Finance Committee discussed proposals dealing with the permanent fund and the budget during a news conference Monday.

The comments come at a time when Republican Gov. Frank Murkowski is considering introducing a proposal to use income from the fund to pay for government. It's also a time when the fund's losses in the stock market for the first time threaten the state's ability to pay dividends to residents.

''Many Alaskans believe this is an entitlement. I don't,'' Kott said. ''I think the permanent fund dividend was one of the worst things we got ourselves into a number of years ago.

''But having said that, since we're there, I think it's important to recognize that the dividend has played an important part in the economy of Alaska, and to just cut that off would be, I think, totally an embarrassment to this Legislature and to the state,'' Kott said.

Alaskans receive dividends every year based on an average of the last five years' income from the $22.5 billion permanent fund. Last year's dividend was around $1,500 per person.

Kott and Finance Co-Chairmen John Harris, R-Valdez, and Bill Williams, R-Saxman, were asked about a bill introduced Friday by Rep. Harry Crawford, D-Anchorage.

Crawford proposes using some of the $1.9 billion Constitutional Budget Reserve, a state savings account, to pay dividends should the permanent fund losses continue.

Dividends are supposed to be paid from the earnings reserve account of the permanent fund, but because of declines in the stock market, there may not be enough money in that account to fully fund the dividend this year.

The constitutional budget reserve was created by voters in 1990 and has been used in most years since to make up for state budget shortfalls. At the state's current rate of spending, the budget reserve account is expected to be empty by June 2005.

Crawford said he knows using money from the fund to pay dividends this year would hasten the day the budget reserve runs dry.

But he said Alaska's economy will suffer a double hit this year if dividends can't be paid, and if Murkowski makes deep cuts in the budget. Murkowski is scheduled to reveal his budget Wednesday.

''It will absolutely devastate the economy if there's no permanent fund dividends,'' Crawford said. ''I don't intend to sit around here and let the economy tank by just saying we lived well in the good times and we're going to live real bad in the bad times.''

The Republican majority leaders voiced little support for Crawford's plan.

''What would the constituents out there think? 'We're just trying to change the formula for our political behind,''' Williams said. ''I don't think we should. We should stick to what the formula says.''

There are many other important needs the state does not have enough money for, such as education, public safety and transportation, Williams said.

Kott said the Crawford proposal is a ''novel approach'' that deserves a look. But he said Alaskans need to recognize that the permanent fund will go up and down with the market, and how much is available for dividends each year is not up to the Legislature.

''We'll have those $1,500 dividends and we'll have those $200 dividends,'' Kott said. ''That fluctuation is built into the system right now and there may be a point where there is no dividend.''

The House Republican leaders expressed more interest in an idea being considered by the Republican governor. Murkowski is considering a constitutional amendment that asks voters to change the method of determining annual payouts from the permanent fund. The proposal may also include a provision to replace state funds spent on education with permanent fund earnings.

Murkowski's spokesman John Manly said the proposal is being considered and the governor may outline it further during his budget address to the Legislature Wednesday.

The concept -- without the provision for spending part of the money on education -- was recommended by the permanent fund board two years ago.

The board's proposal assumed the fund will grow by an average of 8 percent a year. It called for using 5 percent of the fund's market value each year for dividends or other spending. That would leave the remaining 3 percent of growth for inflation proofing.

Proponents say that proposal would provide for a less volatile income stream than the current method of determining dividends.

''I'm beginning to lean more in that direction,'' Harris said.

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