My Turn: For Alaska, the rainy day has arrived

Posted: Sunday, March 09, 2003

This letter is in response to a belief apparently held by the majority of Alaska voters and most recently expressed in a Letter to the Editor that threatened a recall vote should the Legislature consider using our Permanent Fund to help pay education expenses in Alaska. The belief is that the Permanent Fund was created and exists primarily for the purpose of returning a cash dividend to residents of the state. That's not my memory of how and why the fund was originally created.

As I recall, it was created as a response to the chronic problem of a boom or bust economy in Alaska. It was created as the oil revenues that have been paying the lion's share of state expenses since then were coming on line, in the recognition that the oil was finite and would decline and eventually run out. The intent was to have that rainy day savings account to fund state expenses when the oil revenues did decline and the state began to tilt from boom to bust again. It seemed a remarkable act of fiscal policy foresight to me. It seemed an act of maturity and wisdom that opposed the too often implemented "spend it while you got it" attitude.

The permanent fund dividend paid to residents that is now thought to be holy and untouchable came along a bit later. It seemed a good idea at the time; that part of the oil revenues would be passed on directly to the residents in the anticipation that it would also help spur local economies. The intent was not to change the original purpose of the fund, but to add an immediate direct benefit to residents in addition to the longer-term benefit of evening out state revenues to fund services, thus decreasing the long-term income tax burden on Alaskans.

Somewhere around this time, the state income tax was abolished. Thus began the amazing situation where Alaskans pay no income tax to fund expenses of the state, while at the same time are paid a dividend by the state. Nothing is required to get this dividend except to be a resident of the state and keep breathing. The proverbial free lunch does indeed exist in Alaska.

Memories are short, and in fact, I expect many present day recipients of the dividend were not living in Alaska when the original permanent fund was established, so the original purpose of the fund seems to have been lost and forgotten. Government, any government, and the services it provides cost money. Alaska is a rare state where no part of those services is paid for by income tax. For years the Legislature has hacked away at the budget, hoping somewhere to solve the problem by reducing the funding without decreasing the services. Not surprisingly the writer who threatened recall for using any of the fund did not suggest he would be willing to pay his share of expenses through a state income tax. Legislators are terrified that even the act of proposing reinstating the state income tax will end their political careers.

What is the thinking? We have a deepening fiscal crises in the state, while residents vote against using any portion of the fund for the purposes for which it was originally established, and threaten their legislators with recall should they even consider it. The oil revenues that have funded state operations are going away, there is nothing to replace them, and the money has to come from some source. Alaska residents pay no income tax and receive a dividend, and the fiscal gap widens with no solution in sight. This is not complicated math.

It may be time to use a part of that "rainy day" account that was established all those years ago for just such an eventuality. I look at the income-tax-free, dividend-paying period of time in Alaska as a wonderful and fortunate gift, not an entitlement. We have been lucky to live here when the economy of the state based on oil revenues could support that. It worked for a while, but we have another reality today.

Correct me if I'm wrong. In this lively city of diverse opinions and beliefs I feel rather certain that will happen if indeed I am wrong.

Dee Koester has been living in Juneau since 1978 and is the owner of a natural resource consulting business.

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