Use the PFD to invest in Alaskan’s future

Fellow Alaskans, consider my proposal to eliminate the Alaska Permanent Fund Dividend as a method to address the current state budget shortfall. I realize it’s not a new proposal.

Everyone knows the Legislature is always considering tapping the PFD to handle budget shortfalls, now more than ever. The current value of the PFD is $52 billion. What if we could help balance the budget and invest in Alaska’s future at the same time?

Alaskans should consider voting to cash out the PFD with a one-time payment using less than half of the value of the fund. If $20 billion were issued to 641,489 eligible applicants, each would receive approximately $31,000. Low-income individuals would pay about $4,000 in income tax on the amount, giving each person $27,000 of spendable income.

Before you accuse me of being selfish, please carefully consider the following.

With that lump sum, if an individual invested wisely, they would benefit far more than waiting for an uncertain PFD amount each year. Alaskans could pay off their student loan debt, pay on/off their mortgage, buy a home, or maybe start a new business. Better yet, they could invest it and grow their money far more substantially.

Using a compound interest calculator it’s easy to postulate a person investing their $27,000, in a relatively safe mutual fund earning 7 percent, would end up with almost $38,000 in five short years. That’s more than a $2,000 per year return, far better than what we have been getting from the PFD as of late. If you were to invest that $27,000 at age 40 and leave it until age 65 you would have almost $150,000 Consider this, if you were to invest that $27,000 for your child beginning at age 5 until they are 20 the total value grows to nearly $75,000. That’s college tuition or a big down payment on a house.

I know the arguments. Many people will not invest the money wisely. That is true, but we cannot legislate to the lowest common denominator. People who make unwise financial decisions will continue to do so. Those people perpetually on public assistance will likely continue to remain on public assistance after the money runs out. Yes, giving someone on public assistance $30,000 will cause problems with their eligibility. That person can take the opportunity to get off of assistance, maybe go back to school. Or they can max out an IRA, which would reduce their AGI. This lump sum would not affect Social Security Disability or Medicare. Those programs are based on work history.

But what about the future generations? Are we robbing them? Given the investment scenarios I’ve asked you to consider, I firmly believe that those who wisely use this one-time sum could make dramatic positive improvements to future generations to come. Imagine the impact of sending your children to college debt-free or the possibility of even being able to attend college in the first place.

Did you know the average retirement savings in the U.S. for people ages 55 to 65 is only $12,000? How sad is it people work their entire life to end up with almost nothing? Imagine you and your spouse retiring with nearly $300,000 without having to invest a single dime in additional personal income. This proposal has the potential to break chains of poverty for generations of Alaskans.

Why wait for big government politicians to attempt to get their hands on the PFD while not offering any incentives to Alaskans? You have the power to change Alaska’s future.

Here is how this solves the budget deficit problem:

Approximately $32 billion would remain in the fund. That could be moved to the budget reserve to be used for operating expenses. The reserve fund is currently almost $11 billion. Combined they would equal a total reserve of $43 billion.

The five-year average return for the PFD fund has been more than 11 percent. Even using conservative return rates of 7 percent, the $43 billion fund would gain over $3 billion annually. Alaska’s current budget deficit is $3.5 billion, that’s if oil prices stay this low. Cut $500 million in spending and the state could balance the budget without having to tax Alaskans or raid the budget reserve principle.

More savings can come from eliminating the Alaska Permanent Fund Corp and its staff of 35 and annual operating expenditures of more than $13 million in 2014. That’s a big savings just in salaries and benefits.

Finn Rye lives in Palmer.