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Alaska editorial:Alaska needs to adopt a state fiscal plan soon

Posted: Sunday, March 04, 2007

Happy Alaskans are likely headed toward some big Permanent Fund dividends in the years ahead. The poor investment returns of a few years ago are dropping out of the calculation, replaced by much better earnings.

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From a 17-year low of $845 in 2005, the Permanent Fund dividend climbed back to $1,106 last year and is estimated to come in around $1,400 this fall. It could be close to $2,000 by 2010 - or more, if investments are better than average.

The sky may not be the limit, but a family of four could be jumping pretty high with $8,000 total in just a few years.

And assuming investment earnings go as planned, the dividend could grow to more than $2,400 in 2015. Close to $10,000 for a family of four. Even more with better investment returns.

Great news for individuals, but worrisome news for those who hope that someday Alaska will adopt a state fiscal plan. The worry isn't that people will enjoy their dividends. Of course they will, as they should. Or that they will come to depend even more on the annual distribution of Permanent Fund earnings. Of course many Alaskans depend on the dividends to help with the necessities of life.

The worry is that Alaskans will enjoy and depend on the money too much. They will resist any attempt to discuss future uses for the Permanent Fund other than dividends. The state and all its residents will suffer from inadequate schools, roads and other public services because it's a political death sentence to ever suggest that maybe, just maybe, it makes sense to use some Permanent Fund earnings for community good.

We'll be wealthy as individuals, cashing and spending or depositing and saving our dividends, but we'll be poor as a community.

We'll be wealthy as individuals, but not as a state. North Slope oil production will be hanging just above 700,000 barrels a day in 2010 - one-third of peak flow in 1988 - unless companies spend billions to develop new fields under evaluation. That number will be under 550,000 barrels a day by 2015 without heavy spending on new development.

Alaskans may scoff at talk of a state fiscal plan, but sooner or later they need to face the mathematical realities that are sure to come: a lot less oil; at best, 10 years before a natural gas pipeline can go into operation; higher education costs; more traffic on more congested roads. All the while, Alaska lets the $38 billion Permanent Fund do nothing but spin off checks for individuals.

In normal years, the fund earns more than twice as much on its investments as it pays out in dividends. Some of that money could go toward schools and community needs without cutting dividends. Yes, it would mean slower dividend growth in future years, but the checks would still get larger. Just think - larger checks and better public services. We can have it all.

Alaska's elected officials need to lead. They need to tell Alaskans the truth. Alaska needs a fiscal plan. Lawmakers need to adopt an annual percent-of-market-value limitation on Permanent Fund withdrawals to protect the account from losing value to inflation, while maintaining for future lawmakers the option of using some earnings to help pay for community services.

And they need to do it before the dividend reaches $2,000 in a few years. Once Alaskans get a taste of a mega-check like that, it will be even harder to scale back individual expectations for the good of the community.



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