State money for state needs

Public money should be used, first and foremost, to meet public needs.

The Permanent Fund dividend is a wonderful benefit of living in Alaska. And it creates an interesting dynamic that encourages state leaders to keep spending down to have enough left over for a nice dividend. It’s a shame we don’t have a similar dynamic at the federal level, where spending is out of control.

The biggest problem with the dividend is with the traditional formula, which was developed at a time that the state treasury had more oil money flowing into it than state agencies really needed.

If followed this year each Alaska resident would receive a dividend of about $3,000. As a practical matter it is more likely to be about half that amount. Collectively we have too many obligations that are already being short-changed. We just can’t in good conscience pay such a dividend. Not when we are shutting down ferries for the winter, eliminating valuable programs at the University of Alaska and shorting other important public programs.

The Alaska Permanent Fund was created in 1976, a year before the trans-Alaska pipeline started up, even before the oil flowed. The state had a nice nest egg with money flowing into the treasury from lease sales.

The first dividend of $1,000 for each of us was paid in 1982. The original plan for the dividend as established by Gov. Jay Hammond was for each Alaskan to get $50 for each year of your residency since statehood in 1959.

Ron and Penney Zobel, an Alaska lawyer couple, sued claiming the formula was unfair. They prevailed so the first check amount was a thousand for each and every one of us. I came here from Massachusetts in 1967 and would have received only $750, so the Zobels made me an extra $250.

The Permanent Fund traditional dividend formula was established in a much different time and under much different conditions than Alaska is currently facing. It definitely needs to be changed.

The question then becomes what can we afford and what will retain the dynamic that we stumbled upon, one that will encourage state leaders to keep state spending down but meet our most important communal needs and still leave enough for a nice dividend.

The budget cuts of recent years and the problems they have caused just in the last year should serve as a wakeup call.

The need is there and unlikely to go away, not for long.

Forty-one states have a personal income tax so Alaska is one of nine with none. Hopefully we can continue that way. And since we have the Alaska Permanent Fund earnings to help meet our collective needs, thoughtful government decisions could keep us afloat without an income tax for years to come.

We have been drawing down the Constitutional Budget Reserve for many years. That was established in 1991 with money from collection of back taxes and other state revenues. Its purpose was to offset the problem with variability in oil revenues caused by the changing price of oil.

Since the CBR is almost empty, down to about $2 billion, the state has taken to dipping into the more sacrosanct Earnings Reserve Account.

That account has been receiving about $4 billion a year from the Permanent Fund’s corpus.

Efforts are now underway to determine how the Earnings Reserve can be tapped and the amount divided between the state budget and dividends. The important thing will be to keep the draws low enough to allow the fund to grow — or at least to stay level.

Those working on the problem seem headed in the right direction. But we should always keep in mind that funding state operations is most important. Individual dividends are a great benefit for living here, but essential state needs must come first.