My Turn: The back door to the Alaska Permanent Fund dividend

Posted: Friday, January 02, 2004

It's time for Alaskans to closely examine how the Legislature plans to raise funds as it again prepares to 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 attempt another raid on 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. A POMV structure could be good for the Permanent Fund itself, but depending upon how the 5 percent payout is spent it could be very bad for Alaskans and their Permanent Fund dividends.

One high-profile idea would divide a 5 percent the payout from the Permanent Fund equally - half for the Legislature and half to PFDs. It sounds fair until one examines the effects on Alaskans.

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

The impact on PFDs would be about the same as the 1999 plan rejected by 83 percent of Alaska's voters. 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. The Legislature's half of the POMV 50/50 plan would provide about $300 million - probably not enough to cover the looming fiscal gap.

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. Governor 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 PFDs, 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 Refuge is not open and it contains little natural gas, so no giveaways can be engineered there.

Legislators hoping for a natural gas boom may have a long wait. The currently dead federal energy bill scuttled the risky Alaska Highway gasline proposal. Brief attention returned to the more secure and economically viable All-Alaska gasline to Valdez. But BP threw in a monkey wrench by deciding to ship its Indonesian liquefied natural gas (LNG) 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 towards 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 PFDs, eliminate the deficit and provide a surplus. Oil companies could have written off much of the state tax from their federal taxes.

Now is the time for Alaskans to get the facts and work with legislators to solve our fiscal problems. If everyone contributes a little extra - Alaskans, tourists, Outside workers and oil companies, perhaps that is the kind of fairness people can support.

If another unfair PFD raid is attempted, with or without POMV, I will gladly work with the vast majority of Alaskans to stop it again. Let's start the debate.

• Jim Sykes is a former executive director of the Alaska Public Interest Research Group and Oilwatch Alaska, and is currently co-chair of the Green Party of Alaska. He lives in Palmer.



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