Alaskans Split on How to Get State Out of the Red


Alaska is bitterly divided on whether to use a portion of its oil wealth its so-called permanent fund to get itself out of budget trouble.

Even a high-profile assembly of citizens, modeled superficially after the national and state constitutional conventions, has failed to forge consensus.

The $28 billion permanent fund, most of it derived from investments in stocks purchased with oil royalties and revenues from other mineral resources, dwarfs the state's general fund budget of about $2.3 billion.

But while the state has a projected $500 million budget deficit in the next fiscal year, even assuming no new spending, and while school districts statewide are laying off teachers and canceling programs, proposals to tap the permanent fund to cover the budget shortfall face fierce resistance.

The reason, of course, is the permanent fund dividend, an annual "shareholder" payment to Alaska residents that last year gave every man, woman and child who lived in the state at least one year $1,100. Due to the dividend, Alaska was the only state that in the 1990s didn't see a widening gap between rich and poor.

The dividend is critical for residents of extremely remote villages where there is little or no cash economy.

Some see the annual payment from the oil-wealth account as fulfillment of the state's constitutional obligation to manage natural resources for the maximum benefit of all the people. Others say it's silly to contemplate raising taxes to plug the budget gap when the state has $28 billion in the bank.

Gov. Frank Murkowski won election in 2002 after saying there was no need for new taxes or permanent fund money to balance the budget. Murkowski, a Republican who served in the U.S. Senate for 22 years, said that he would ramp up oil production and encourage development of a natural gas pipeline.

The existing tax and royalty structure would generate enough new money from these measures to close the gap, he suggested.

But resource development hasn't occurred at anywhere near the pace Murkowski expected. And many people were shocked when he proposed several taxes in his first budget, all of them small, and some of which were enacted.

Murkowski has floated additional tax proposals this year but remains adamantly opposed to an income tax, which Alaska hasn't imposed since 1980 at the height of the oil boom.

After repeatedly denying he was contemplating use of permanent fund money to aid state finances, Murkowski announced in his Jan. 13 state of the state speech that he was convening a "Conference of Alaskans" to consider whether it was time to tap into the "rainy day account." The results of the conference, he said, would be presented to the Legislature and then to voters in the November general election.

When the 55 delegates gathered for the three-day event Feb. 10, Murkowski said the future of Alaska was at stake.

"I've been elected to statewide office five times, and I've served in office nearly half my adult life. I've endured some defeats, I've met presidents, and I've met queens, and I've also held my own newborn babies in my arms. And years later, I've held their babies. Been around the world a couple of times, and I've been to a few county fairs, but I haven't stood before on a threshold like this and looked so clearly in the face of our future. I cannot remember so much opportunity condensed into such a concentrated moment as this. Make no mistake; history will record what this conference achieves," he said

Thom Walker, president of the student body at the University of Alaska Fairbanks, told the delegates: "Like the 55 of Philadelphia and Fairbanks, may you be adequate to your times."

Critics said beforehand the conference would give Murkowski permission to tap into the permanent fund. And indeed, delegates voted to recommend that an unspecified amount of the fund be used to help fill the fiscal gap either from some of the earnings of the fund, or, preferably, from a percentage of a market value-based distribution, under a proposed constitutional amendment to change the fund into an endowment.

But delegates surprised Murkowski with a recommendation to enshrine the permanent fund dividend in the state constitution. Murkowski aides initially said he would introduce all of the conference resolutions as legislation. But the governor has declined to do so and spoke against putting dividend money off-limits, saying it is unwise to tie the hands of the legislature forever.

The Alaska Legislature is scheduled to begin deliberations on the fiscal gap on March 15.

Discussion of using permanent fund money for government operations revived a dormant citizens group called Just Say No, which campaigned successfully against an incursion into the fund in 1999. On an advisory question in a special election that year, 83 percent of voters said the legislature should leave fund earnings alone, even the amount left over after dividends are paid and the principal is inflation-proofed.

The principal of the permanent fund is constitutionally protected. So one lawmaker is revisiting a proposed constitutional amendment that followed the 1999 vote.

Fairbanks Rep. Jim Holm proposes to give each Alaskan a final dividend of $20,000, then end the dividend program and retain the balance of the fund approximately $16 billion to earn money for government. Projected income from the fund then would be sufficient to cover most or all of the fiscal gap.

That idea didn't go far in the legislature in 2000. Opponents say it destroys the concept of intergenerational equity that is at the heart of the permanent fund. But others believe the state won't be able to resolve its budgetary problems until the dividend is no longer a political issue.

Thus, three constitutional amendments are under consideration: The super-size final dividend; permanent protection for an ongoing dividend; and the endowment model, which would allow the legislature annually to take five percent of the fund's total market value averaged over five years.

A pending bill that is contingent upon passage of the endowment amendment calls for using most of the payout for government, which would suppress the growth in annual dividends.

Democratic lawmakers generally favor a permanent dividend at the level generated by the current formula. The Republican majority generally favors using some fund money for government, preferably through the endowment model. It takes a two-thirds vote of each house of the legislature to put a constitutional amendment on the ballot. Right now, it appears that none of the proposals have the votes.

Which might leave Alaska fiscal policy where it has been for over a decade: Veering between chaos and paralysis.

Bill McAllister is a statehouse reporter in Juneau, Alaska.


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