Permanent fund change holds potential to produce bigger dividends

Posted: Sunday, April 25, 2004

The acceptable solution to the state's chronic fiscal problem is finally solidifying.

Both the Senate and the House are moving legislation that will produce a long-term, stable and more predictable permanent fund dividend stream than the status quo, or, for that matter, any of the other proposals being kicked about. The legislative proposal produces re-occurring income to pay for essential state services without imposing a broad-based tax on individual Alaskans. It is a solution every Alaskan should support.

As an aside, it is important to review Gov. Frank Murkowski's approach to finding this solution. Last September, he endorsed the proposal of the Alaska Permanent Fund Board of Trustees for distributing permanent fund income by adopting the concept of the percent of market value, or POMV, management mechanism.

Instead of forcing his personal choice on how the income or payout proceeds should be used, the governor has worked to enable a solution to emerge from Alaskans in open public debate.

This debate centered on recommendations of the Conference of Alaskans, which convened this past February. Since then, the Legislature has considered the issues, one by one. Our lawmakers are now at the "ditch of decision," and I believe they can reach the other side because POMV is a mechanism linking the dividend amount to natural resource development.

The permanent fund corporation analyzed how adopting the POMV method would affect the dividend over the coming years. It used a chart to show how the dividend would grow under both the status quo and under the proposed POMV method:

Under the status quo, there would be lower dividends initially, but increasing in amount after 2005.

Under the POMV, assuming a 50-50 split between dividends and education, there would be a higher dividend for 2005 and then slower, but stable future growth.

Under the status quo, annual dividend amounts are volatile and not assured, rising or falling with investment earnings.

Under POMV, dividends would be stable and assured.

The permanent fund corporation analysis did not include the anticipated benefit of increased revenue from natural resource development, however. It didn't factor new revenue from a gas pipeline, heavy oil, lease sales at Bristol Bay and offshore the Arctic National Wildlife Refuge, ANWR itself, and the National Petroleum Reserve-Alaska. Admittedly, some of these projects are farther out in the future than others, but all could produce new revenues to the general and permanent funds.

The key factors that will determine the amount of future dividends are increasing royalty payments to the permanent fund from new resource development and controlling state spending. The proposed spending limit capping state budget increases should moderate the demand for new revenue to pay for government services. The 50 percent split for dividends will be secure. Increased permanent fund market value from investment of new resource royalties should translate into bigger dividends.

A question now resonating in the Legislature concerns the risk of voters defeating a POMV constitutional amendment in the November 2004 general election. Some advocate doing nothing this session and simply letting Alaskans experience a severe budget crisis.

These advocates argue it would then be politically acceptable for the next Legislature to use a simple majority vote to directly appropriate money from the permanent fund realized earnings reserve account to pay for government services without a vote of the people.

My problem with this theory is that any Legislature will find it a high hurdle to overcome the fact that there has never been any direct appropriation from the permanent fund earnings to pay for government services. And, the governor believes it is irresponsible to wait for the crisis before fixing the problem.

We believe it is worth the risk of a failed plebiscite. Let's trust the people to make the decision. The Conference of Alaskans, and more recently, voters in the Anchorage municipal election resoundingly stated the same thing: Fix Alaska's financial chronic problem, and fix it now.

Those who argue that POMV means lower dividends for Alaskans are confusing the issue. Gov. Murkowski intends to increase resource development, which will increase the size of future dividends. No legislator, Democrat or Republican, should continue opposition to the POMV. It's time for citizens to get involved in the debate. Urge your legislators now to enact legislation so Alaskans can ratify POMV in November 2004.

Bill Corbus is the commissioner of the Alaska Department of Revenue.

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