Alaska’s legislators are failing middle & lower income Alaska families

A recent opinion piece in the Frontiersman by Carl Marrs deserves a response. That piece, titled “This year’s PFD is affordable, but it’s not sustainable”, argues that while this year’s Permanent Fund dividends (PFDs) “are affordable because of high oil prices,” they are not “sustainable once oil prices return to long-term averages.”That implies PFDs are tied to oil prices. But that’s not what Alaska’s statutes say. Instead, Alaska’s statutes specifically tie the PFD to “the income available for distribution” from Permanent Fund earnings.

We understand that, in a 2017 ruling, the Alaska Supreme Court said that the Governor using his veto authority or, impliedly, the legislature could ignore the statute in any given year during the course of the appropriation process, diverting the revenues designated for the PFD to other uses. But that decision did not void the statute, it merely said that the Governor could veto or legislature appropriate the money for other uses.Mr. Marrs piece implies that such PFD diversions — what some call PFD cuts — are good for Alaska. But that’s not what economists who have studied the issue have concluded.A 2016 study for the legislature by economists at the University of Alaska — Anchorage’s Institute of Social and Economic Research (ISER) found that, because “the impact of the PFD cut falls almost exclusively on residents, and it is highly regressive … it has the largest adverse impact on the economy per dollar of revenues raised” of all the various funding options.A 2017 follow up study by one of the co-authors of the 2016 study concluded that, again of all the various funding options, “a cut in PFDs would be by far the costliest measure for Alaska families.”

And as reported in an Anchorage Daily News story at the time, in a separate 2017 study for the legislature, the Institute on Taxation and Economic Policy (ITEP) found that “cutting Alaskans’ Permanent Fund dividends would hit middle-income Alaskans more than three times harder than a progressive income tax that would raise the same amount of cash. … Even upper-middle income Alaska families — those in the top 60 to 80 percent … — would be slightly harder-hit by the dividend reduction.”

We understand from both the ISER and ITEP studies that, because of the significantly lower impact on them, those in the top 20% income bracket benefit from using PFD cuts instead of taxes, and that, as a consequence, they strongly oppose adopting taxes to pay for government services.But as the headline from the 2017 ADN story reports, “for most Alaskans, an income tax would hurt less than a PFD cut.”While not in Mr. Marrs piece, sometimes those in the top 20% also claim that, even though deeply regressive — meaning that they impact low- and middle-income families more heavily than high-income families — PFD cuts nevertheless are justified because “lower-income Alaskans depend more on government services.”But we have never seen an economic study that demonstrates that, and certainly it is hard to imagine in any event that low income Alaska families use 9 times more, lower middle income families 4 times more, middle income families 3 times more, and even upper middle income families 2 times more than those in the top 20%. Those are the multiples found by the 2017 ITEP study of the impact of PFD cuts on families in those brackets compared to those in the top 20%.We understand that sometimes government spending — or the amount put in savings for future use — exceeds traditional revenues. We could reform spending and bring the government’s budget in line with the revenues that are currently available, but we have seen no political will to attempt this. So when additional spending occurs all Alaska families should be required to contribute equitably to make up the shortfall, not, as occurs by balancing the difference through PFD cuts, by forcing middle and lower income families to bear a vastly disproportionate share of the burden.

While the legislature’s decision to use PFD cuts may be good for those in the top 20%, by disproportionately burdening middle and lower income — the remaining 80% — of Alaska families, it fails them and, as the 2016 ISER study concluded, the overall Alaska economy.

A 3rd Generation Alaskan, Michael Dukes is the host of The Michael Dukes Show, broadcast weekdays across the state of Alaska on a variety of local radio stations and via the internet. Brad Keithley is the Managing Director of Alaskans for Sustainable Budgets, a project focused on developing and advocating for economically robust and durable state fiscal policies.