It's time for Alaskans to join the permanent fund fight

A Spectrum, by James Borsetti

Alaskans should follow the advice of the Alaska Permanent Fund's Board of Directors and adopt an endowment formula in distributing the permanent fund's yearly appropriation. A constitutional amendment establishing this should be available for a vote of the people by November '04s general election. The way this amendment is written is crucial to the permanence of the dividend program. The amendment should mandate the fund's yearly distribution is permanently, evenly split between paying dividends and state expenses. This formula of appropriation writes the distribution of earnings-based dividend checks into law.

The permanent fund is being managed to earn an 8 percent return on investments. The endowment's formula only allows a 5-year averaged 5 percent yearly appropriation. This formula inflation-proofs the fund as well as making the payout predictable. The permanent fund grows yearly. The state budget has increased cash flow, while the people receive a constitutionally mandated dividend check.

Establishing an endowment formula removes the Earning Reserve Account from the permanent fund. This increases the need for the Constitutional Budget Reserve. The CBR has served well as a savings account, available as cash flow, when needed to help develop our state. A second Constitutional amendment should be drafted to insure the CBR's permanence. We do this by rededicating the percentage of oil revenue now deposited yearly into the permanent fund to the CBR.

The permanent fund is doing fine. It is big enough to grow on it's own earnings. Since Oct. 1, 2002 to Dec. 6, 2002 it has earned 1,653,400,000. If we passed the proposed amendments, fiscal '06 will have $625 million available from the permanent fund to cover its fiscal gap. Equally important, the permanent fund would pay $625 million towards its first lawfully mandated dividend checks.

The CBR is worth $2.4 billion today. During the three fiscal years '03, '04 and '05 this fund can easily earn itself a cumulative $200 million. That makes available $2.6 billion for appropriation fiscal years '03, '04 and '05. If the General Fund needed $800 million from the CBR each of these years, the CBR would still have a balance of $200 million at the beginning of fiscal year '06. By constitutionally dedicating the CBR yearly deposits, it is presently only threatened by a Fiscal gap of over $800 million yearly. Recently predicted high oil prices should mean the yearly budget deficits for fiscal years '03-'04 and '05 will run around $500 million. With the rededicated oil revenue starting fiscal '06, the CBR fund would receive yearly deposits of about $300 million. Remember fiscal '06 has $625 million from the permanent fund appropriation to cover its potential deficit. The CBR would start growing from the oil revenue deposits as well as from its own earnings. It takes a three-quarter-majority vote of the legislature to appropriate CBR cash to the General Fund. With wise budgeting we could make the CBR grow permanently, even as its funds were available to cover any emergency budget needs.

Drafting and voting into law these proposed Constitutional amendments allow our future chief sources of state income to be oil revenue and investment earnings. There would be no need for state income taxes. We would retain the availability of property and sales taxes as plentiful sources of income for local governments. On the local level is where the people should contribute to the public sector's needs. It is on the local level that the people have the most influence over how their tax dollars are spent.

These two Constitutional amendments would complement each other in that one works best when investment earnings are high and the other functions best when oil prices are high. High oil prices tend to weaken the stock market, lowering investment returns. Low oil prices usually strengthens the market, resulting in higher returns.

The Alaskan people had best join the fight for their, as well as for their children's, share of our state's wealth or we deserve to lose it. Do not believe those who say, "It can not be done." We are the creators of what can be done. Let us demand some creative leadership from our leaders.

James R Borsetti is a Palmer resident.