THE PERMANENT FUND

"Protect it for the generations to come"

The Back Door to Alaskan’s Permanent Fund Dividend

By Jim Sykes

Hang onto your wallets as the legislature prepares to again spend more than it takes in.  Governor Murkowski wants $400 million from the Constitutional Budget Reserve and a head tax on tourists.  But the tourist tax could be given away to oil companies through royalty and tax breaks also proposed by the Governor. 

Some legislators appear ready to raid Alaskans’ Permanent Fund Dividends (PFD).  One scheme would change the structure of the Permanent Fund using a “percent of market value” (POMV) payout—similar to systems used by private college endowments.

There are really two parts to the plan. The permanent fund itself (the entire fund, not just dividends) could benefit from a POMV structure and become more stable and predictable--but only if a good plan became part of the constitution.

The second part of the plan, the 5 percent annual payout, is the riskier part that could be bad for Alaskans and their PFDs.

One high-profile idea would divide the 5 percent payout equally -- half for the Legislature and half to PFD’s. It sounds fair until one examines the effects.

Dr. Sharman Haley of UAA's Institute for Social and Economic Research compared the 50/50 POMV plan with a sales tax and an income tax. (www.iser.uaa.alaska.edu/Publications/POMV&taxes2.pdf ) The study indicates the 50/50 POMV payout is the worst of the three.

The impact on dividends would be about the same as the plan rejected by 83% of Alaska’s voters in 1999.  A 50/50 POMV payout would unfairly take a higher percentage of money from lower and middle income Alaskans.

Now, as then, Alaskans would bear the entire increased tax burden without additional contributions from tourists, guest workers or Outside companies operating in Alaska.

Most fair, according to the ISER study, is an income tax that parallels the federal tax. Lower income families would pay little or nothing and those with higher incomes would pay more, equalizing the burden across all income levels.

Alaskans probably won't support POMV or other taxes if state passes their money to oil company tax breaks at the same time. Gov. Murkowski recently endorsed oil royalty reductions that could go as low as zero on North Slope federal lands. He also enticed independent oil producers with incentives. Such "less money for more oil" incentives could reduce funds for dividends, state government and Alaska Native regional corporations.

Prudent oil and gas development should focus on state lands where we get 90 percent of the royalties, instead of 50 percent or less from federal lands. Ample supplies of oil and gas are expected to last another 30 to 40 years on state lands alone. Fortunately, the Arctic National Wildlife Refuge is not open and contains little natural gas, so no federal giveaways can be engineered.

Legislators hoping for a natural gas boom may have a long wait. The currently dead federal energy bill scuttled the risky Alaska Highway gas line proposal. Brief attention returned to the more secure and economically viable All-Alaska gas line to Valdez. The moment ended with BP's recent decision to ship its Indonesian liquefied natural gas to Baja California instead of developing Alaska LNG. It's hard to understand why the Legislature allows oil companies to hold hostage Alaska's enormous gas reserves without contributing more toward the oncoming fiscal gap.

Our state treasury would be full if the Legislature had taken repeated suggestions to enact a windfall profits tax on oil above $18 per barrel. Equalizing corporate and state "profits" on high-priced oil would have raised about $3 billion over the last three years -- enough to pay dividends, eliminate the deficit and provide a surplus. Oil companies could have written off much of the state tax from their federal taxes.

Whatever tax plan emerges, Alaskans demand fairness. A package that includes Alaskans, tourists, Outside workers and oil companies stands the best chance of support.

People need to work together with legislators to solve our fiscal problems. If another unfair dividend raid is attempted with or without POMV, I will gladly work with the vast majority of Alaskans to stop it again.

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