State Constitution not right place for dividend

Posted: Monday, January 11, 2010

This past week, two Anchorage legislators announced their plans to introduce legislation asking Alaskans to place the Permanent Fund Dividend program into the Alaska Constitution.

"Wow," I said to myself. "What an idea!"

The Permanent Fund was created by the Legislature and a vote of Alaskans in 1976 as the trans-Alaska oil pipeline neared completion. Thinking about how quickly the Legislature had spent the $900 million earned from the first Prudhoe Bay lease sales, people wanted to save some of the massive amounts of money soon to be filling state coffers.

There was broad public support for saving a significant portion of the state's impending oil wealth, so as not to repeat the same mistake. Article 9, Section 15, of the Alaska Constitution provides: "At least twenty-five per cent of all mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing payments and bonuses received by the State shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments specifically designated by law as eligible for permanent fund investments. All income from the permanent fund shall be deposited in the general fund unless otherwise provided by law."

Those 72 words very simply take a minimum one-quarter share of the state's oil earnings and set it aside, depositing these funds in the state's main checking account unless the Legislature chooses to do otherwise.

Four years after the Permanent Fund's creation, the Legislature created the dividend program, which had a rocky start. The original scheme to give $1,000 for each year of one's Alaska residency was challenged by some newer Alaskans, and the U.S. Supreme Court declaring that dividend plan unconstitutional.

The Legislature then came up with our current system whereby, anyone who has lived her one year can claim Alaska residency and get the same annual payment as lifelong Alaskans.

One reason voters came together to create the Permanent Fund is because it was and remains a simple, straightforward and flexible trust fund. There's no way the Permanent Fund itself would have been created if it were as structurally and politically complex as the dividend program.

Don't get me wrong. I've enjoyed receiving permanent fund dividends as much as anyone. The money comes in handy, and if some October in the coming years I don't see that sizeable sum directly deposited, I'll miss it. But I'd never support placing the dividend program into the Alaska Constitution. The dividend program is a complex creature of statute. Comprising its own chapter of Title 43, with more than 30 sections, the dividend laws are from time to time revisited by the Legislature regarding minor issues such as allowable absences, but the basic program itself has remained intact.

No politically-savvy legislator would ever propose eliminating the statutory dividend program. In the short run, there is no practical effect to upgrading dividends from statutory to constitutional status, but the negative effect would be felt eventually.

Constitutions are not good places for complex, verbose laws. They are rather where broad principals of public policy, agreed on by broad majorities, are enshrined.

Statutes are where the Legislature does the more intricate work of setting detailed policy. If the dividend program of today were ensconced in the Alaska Constitution it would deny future generations any flexibility to use Permanent Fund earnings.

In the coming decades, Alaska's fiscal condition may change dramatically. We may get our vast natural-gas reserves to market, replacing the oil revenues that pay for almost everything we enjoy in the way of state government services. We may find more oil to keep the pipeline running.

But we may also find ourselves facing huge deficits, with no means to pay for state government, deficits that couldn't be bridged by any amount of taxation or other revenue sources. If we choose today to promise all Alaskans via the state constitution that the Permanent Fund exists solely to pay dividends to individual Alaskans, it will be impossible even to consider using the fund to pay for public services without removing the dividend program from the Constitution. It would foolish to place ourselves in that position.

Sen. Hollis French and Rep. Harry Crawford are both foregoing their current legislative positions and running for statewide office. I imagine their candidacies might in some measure benefit from their embrace of the concept of constitutional dividends.

French stated this week how dividends had helped his son buy a house. No doubt a lot of dividend money has gone to such worthy causes, but we'll never know how it all has been spent, so that is an irrational way to assess the worthiness of the dividend program.

To ensure that public money is expended the best way, the Legislature allocates funds in every year's budget. Dividends are part of that budget, a discrete decision made by the Legislature, and one that I trust the Legislature to continue making until circumstances suggest a wiser course of action.

Constitutional dividends may make a good sound bite, but in the long run, they are foolish. One need only look at the Constitutional Budget Reserve to see how what at first seemed like prudent policy had unintended consequences.

In 1990, the voters added Section 17 to Article 9 in the Alaska Constitution to prevent the Legislature from blowing through large settlements from tax litigation with oil companies. One provision of the language creating the CBR requires a three-quarters vote to spend its funds. While this makes it harder for the Legislature to spend money, it also gives a small minority the ability to deny fully funding the budget in years where we otherwise would run a deficit, leading to greater spending as the votes of the hold-out minority are purchased by adding items to the expenditure list.

The side consequences of a constitutional dividend program would be incalculably more unpleasant. As we move farther into the 21st century, I want Alaskans and our elected leaders to be able to respond as nimbly as possible to changing circumstances. I strongly oppose making dividends a constitutionally guaranteed perk of being Alaskan.

• Ben Brown lives in Juneau.

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