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July 22, 2002 The Anchorage Daily News says we should lower our dividend expectations

Posted: Monday, July 22, 2002

Nobody is crying in their beer about the announcement that this year's Alaska Permanent Fund dividend will be $1,550, about $300 less than last year. The dividend still represents an unparalleled privilege for Alaska citizens. Most of us are just grateful.

But this is a sign of things to come. The dividend is less and less likely to be the mainstay of income and economic activity it once was. In our gratitude, we should also lower our expectations.

The dividend is a major force in Alaska's economy and lifestyle. It is a significant part of the yearly budget for a family of four -- indeed, a crucial part for those at the lower end of the income scale. In the aggregate, the dividend distribution represents about 6 percent of household buying power in the state's economy.

The dividend peaked two years ago at $1,960 and dropped last year to $1,850. Barring an unimaginable turnaround in financial markets, it will fall again next year. The dividend formula is based on a five-year average of market performance; when the markets drop, so does the dividend, albeit with some lag. Alaskans benefited from the market bubble of the late 1990s, and they are suffering since it burst.

We have argued that the dividend should be phased back to help fill the state's billion-dollar-a-year fiscal gap and to forestall the need for draconian taxes. We have argued that the dividend should be preserved, to help protect the Permanent Fund itself, and ratcheted down gradually, to give people time to adjust to the change. Finally, we have suggested that income supports for Alaskans should be shifted more to a basis in work or need than in mere residency. These proposals represent a middle ground in the debate over whether new taxes or Permanent Fund earnings should fill the fiscal gap.

But as markets continue to slide, that middle ground is shrinking and the need for action is growing. Smaller dividends represent smaller Permanent Fund earnings and fewer choices in dealing with Alaska's fiscal mess. The state will need to act smarter, sooner, to cope successfully. As this year's election campaign proceeds, voters would do well to query the candidates closely on what they'd do about it.



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