Column: Looting the Permanent Fund

Posted: Sunday, March 15, 2009

When Alaskans went to the polls in 1976 they were in an optimistic mood. The state had blown through $900 million in oil bonuses received seven years earlier, and no oil had yet been produced from the North Slope's fabulous oil fields, but the pipeline to Valdez was under construction and jobs were plentiful. Turnout at the election was 128,000, up an astounding 30 percent from two years earlier. One reason was excitement about the proposal on the ballot to create a permanent fund.

Of the 680,000 people in Alaska today only about 160,000 are old enough to have cast ballots in that election, and of those, I figure only about 35,000 were here then, and actually voted. I am among that number.

When I voted in 1976, I was thinking about that $900 million windfall. That money was gone: certainly not all wasted, but just as certainly gone. We spent it on ourselves. The idea in 1976 was to set aside a small part of future oil wealth for generations to come.

Alaskans who voted to establish the Alaska Permanent Fund thought the money we put in the fund principal would be constitutionally protected, meaning that it could never be spent.

We were wrong. Today, Gov. Sarah Palin, with the acquiescence, if not support of legislators, plans to take a billion dollars out of what just about everyone thought was the principal and pay it to ourselves as a dividend.

This mess developed by accident, and like most accidents, it is easy in retrospect to see how it would have been avoided. We would have no problem today if legislators had been willing to compromise on a 2005 constitutional amendment shifting the fund to a payout based on a percent of market value.

In the last 33 years Alaskans have deposited $29.6 billion in the permanent fund, but as of March 12 the fund was only worth $27.1 billion, putting it $2.5 billion underwater. Despite this deficit, Alaska Permanent Fund Corporation officials say they plan to transfer about $1 billion to the Department of Revenue on June 30 to pay this year's permanent fund dividend. Barring an increase in the market value between now and June 30 of $2.5 billion, the value of the fund on July 1 will be $1 billion deeper in the red than it was the day before, wholly the result of the PFD transfer. Like corporate officials who pay themselves bonuses while their companies are going bankrupt, we will have dipped into our capital to line our pockets. The only difference is that it will be future generations of Alaskans instead of company stockholders whose capital was stolen.

As one might expect, lawyers were involved in this looting. It's difficult to find conduct by government so outrageous that a clever lawyer can't dress up as legal. The torture of prisoners is an example. The looting of the permanent fund is another. The constitution says you can't spend the principal? No problem, said former Attorney General Greg Renkes. In a 2003 legal opinion Renkes simply redefined the word "principal," deftly sidestepping the inconvenient constitutional wording.

The Renkes opinion is as contrived a piece of ends-driven jurisprudence as an Alaska attorney general has ever put his name on. I expect someone will go to court and successfully challenge this under-the-table raid on the fund. But I'm an economist, not a lawyer. What do I know?

What I know is that whatever a judge may say about the Renkes opinion, it is immoral to pay ourselves money that we long ago pledged to the benefit of future generations.

I know that eliminating the dividend this year would be economically devastating, especially to those already suffering the most from high energy prices and the sick economy.

I know that despite the state's own looming fiscal problems, it has about $8 billion of reserves outside of the permanent fund. If we reduce the PFD to half of what it would have been, it would only cost the government $500 million, about one-sixteenth of the $8 billion. And when the permanent fund recovers I know hardly anyone would object to repaying the state treasury with an appropriation of permanent fund earnings.

And finally, I know we are all going to have a hard time looking our grandchildren in the eyes if we continue let our leaders loot the permanent fund to pay us a dividend.

• Juneau economic consultant Gregg Erickson is editor-at-large of the Alaska Budget Report. E-mail him at gerickso@alaska.com.



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