Some lesser known Permanent Fund Dividend history

As Alaskans face the March 31 deadline for applying for the 2011 Permanent Fund Dividend (PFD), I thought it might be useful to present some history linked to the PFD that is not contained in Alaska’s history books.

The concept of the PFD was created by Gov. Jay Hammond. He had floated various versions of the PFD concept during his first term of office, but it wasn’t until his second term — when Prudhoe Bay oil began to flow down the TAPS pipeline, and millions of dollars from oil production began to cascade into the state treasury — that the PFD program became a reality.

Although the PFD is now a common element of Alaska’s governmental vocabulary, Hammond and those of us on his senior staff, literally wrestled for months to label the program which would share with every Alaskan the earnings of the constitutionally dedicated Permanent Fund.

The PFD program name ultimately came from a meeting with the Alaska Federation of Natives (AFN). Hammond looked forward to these meetings and often used them as a forum to bounce ideas off AFN’s leadership and to ask for their ideas on addressing the host of issues that faced him in that era. One of the key AFN leaders was Juneau’s own Byron Mallott, whom Jay Hammond greatly respected.

During this AFN meeting the Governor explained the difficulty we were having dreaming up a name for the program that would share a portion of Alaska’s oil wealth with all Alaskans. After explaining his concept of sharing a portion of the earnings of the Permanent Fund directly with Alaska’s residents, Roger Lang chimed up and said: “Governor, the concept you are describing is simply a Permanent Fund Dividend — that’s what you should name it.”

And that’s exactly what Jay Hammond did, and that’s how the dividend program’s name was born.

Two of the major challenges facing Hammond — after the Legislature passed his dividend legislative package — were the court challenges which surfaced over the program and how find the money to fund the first PFD distribution.

The court challenges to Hammond’s first PFD program blocked the distribution of dividends for three years. Ultimately, the U.S Supreme Court ruled that a key aspect of his program was unconstitutional. That element of the program was labeled “durational residency” and the concept was simple: the longer you lived in Alaska, the larger your PFD. This policy was the foundation of Hammond’s dream for an ideal PFD program. However, it wasn’t to be.

The Supreme Court’s decision on the PFD case was the first domino to fall regarding programs which had “durational residency” as a cornerstone, such as the Pioneers’ Longevity Bonus and eligibility for admission to Alaska’s Pioneer Homes. After the Court’s decision, all of these programs were dramatically altered to come into compliance with legal principles of the dividend decision.

Hammond pushed hard for a back-up PFD program, and although that program is what is in existence today, he remained convinced that his initial PFD was legally sound and only reluctantly moved forward to implement a back-up PFD program.

Funding of the first PFD was his next challenge. At the time Hammond had hoped to distribute the first PFD, the Permanent Fund contained less than $100 million. To overcome the problem of issuing a miniscule PFD based on Permanent Fund earnings, an idea of loaning money from the General Fund to the Permanent Fund to pay for the proposed Dividend was implemented. Those General Fund loans were ultimately “forgiven” through legislative action supported by the Governor.

As court challenges blocked issuing the PFDs for three consecutive years, the General Fund loans to the PFD program grew and sat in an escrow account awaiting the final decision of the U.S. Supreme Court.

The total amount of the General Fund loans that accumulated in the escrow account for those three years was $440 million.

After the final court outcome, and a rewrite of the Dividend law to make it constitutional, Rep. Oral Freeman of Ketchikan did some quick math on the balance in the escrow account and the number of Alaskans eligible to receive the first PFD. He then developed the idea of making the first dividend $1,000 even. It was a stroke of political genius and Hammond quickly signed on to the idea.

Those of us on the Governor’s staff urged Hammond to allow his signature to be placed on the first PFD check. However, due to the fact that the back-up PFD program was not his first choice, he didn’t want to signal to Alaskans that it was by being signatory to the check.

Therefore—as I recall—after much discussion with the Governor, Carol Berger, who was then Commissioner of Administration, was selected as the State official whose signature would appear on the first PFD check.

• Reinwand was Hammond’s top aide during his second term and served in the same position for then-Sen. Frank Murkowski in the Senator’s Washington, D.C. office. He is now a lobbyist and he and his family have property and business interests in Juneau.