There's good news, bad news for Alaska

Posted: Sunday, October 10, 2004

Ketchikan Daily News By Lew Williams

The good news for 630,000 Alaskans is collecting his and her annual Alaska Permanent Fund dividend this month. It is based on the average net profit made by the Alaska Permanent Fund for the past five years. The bad news is that although the fund netted 14.1 percent in fiscal 2004, and although the oil price is at a record high, the stock market slump in 2001-2003 lowered the five-year average. So the dividend is only $919.84, the lowest in 12 years.

More good news-bad news for Alaskans is that the oil price is at a record high. It has topped $53 a barrel in Texas and Louisiana, meaning more than $47 a barrel for North Slope crude. That is up from $28 a year ago. It's good news for those envisioning Permanent Fund dividends boosted by oil revenue. It's bad news, especially in rural areas, to those who depend upon oil for heat, light and transportation.

The news could have been better if members of the Legislature had not been frightened by tunnel-vision constituents who seek only dividends from our oil. Lawmakers failed to follow the recommendation of the permanent fund directors, who asked that a constitutional amendment be placed on the ballot. If approved, the amendment allows the state to take five percent of the market value of the Fund, averaged over five years, instead of only the earnings. "Maybe next year," as Chicago Cubs fans say.

The Alaska Permanent Fund has an exceptionally complete Web page, From it we learn that the market value of the fund, averaged over five years, is $25.28 billion. Five percent of that, under the percent of market value (POMV) plan, would make $1.264 billion available for dividends or whatever legislators decided after listening to constituents. Instead, operating under the average net profit over five years, only $581.2 million was available for dividends this year after the required $524 million for inflation-proofing was taken from earnings.

The amount that could have been available under POMV is twice that under the current plan but raises the question: What about inflation-proofing? It's automatic under the POMV. The permanent fund earned 14.1 percent on investments in 2004. Taking 5 percent of the total fund value for dividends and other expenditures leaves 9.1 percent of the earning in the fund, plus the earnings in excess of 5 percent for each of the four previous years.

The problem comes after the constitutional amendment is adopted. Where does the 5 percent go? That is up to the Legislature to designate after listening to constituents, as it did to set current dividends and inflation-proofing.

When it is proposed that some of the POMV be used for state expenses, legislative critics accuse lawmakers of trying to take their dividend. The truth is, the lawmakers can take the entire earnings of the fund now instead of paying dividends or inflation proofing. And if something isn't done, such as changing the payout to the constitutionally protected POMV, the worst could happen. Oil prices could tumble back to $10 a barrel, the stock market could crash so there would be no earnings for dividends. Or if legally pressed, the Legislature could appropriate all of the earnings to cover mandatory state expenses, or pass an individual income tax, or both.

The safest fiscal plan for the state and its residents is to switch to the POMV at 2006 election. In the meantime, lawmakers and those running for office should consult with constituents on how to divide the 5 percent under POMV. If only one half of it went to dividends this year the dividend would have been more than $1,000 instead of $919.84. And it goes up each year, instead of fluctuating, because the market value of the fund climbs from automatic inflation-proofing.

The other half of the 5 percent could have comfortably covered state expenses and increased revenue sharing with local government. It also could have matched more school construction projects, boosted education, provided relief for rural areas stung by the increase in the price of oil. It could have matched more federal funds for Alaska roads, ferries and airports and financed bonds for power interties and other projects. Some could have been saved in the Constitutional Budget Reserve for possible recession days.

Alaska will have a recession if John Kerry is elected president - he promises it by opposing ANWR - or another anti-development Democrat is elected in 2008. Jimmy Carter overselected Alaska lands at the behest of professional environmentalists. Bill Clinton brought the extreme environmentalists into his administration, kicking out the timber industry. Mining development and oil exploration in the National Petroleum Reserve are assailed by environmentalists.

Adopting the same tunnel vision as those who demand dividends only from the Permanent Fund, Alaskans refused to compromise on subsistence hunting and fishing so the federal government has trumped state management. Outside groups are girding to intervene in North Pacific fishing policy.

Regardless how Alaskans vote Nov. 2, another Carter-Clinton-like administration is possible in the future. Real bad news. The good news is that Alaskans still have a chance to prepare, but not forever. Remember what happened to state control of fish and game when Alaskans failed to act on subsistence.

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