Take action to fill gap

Posted: Friday, October 11, 2002

How to solve the fiscal gap? Alaska's governor, Legislature, people, and media must unite. Alaska is wealthy. We can design two constitutional amendments that complement each other. One helping when oil is high, the other functioning best when the Alaska Permanent Fund has good earnings. High oil has a negative effect on the market. Low oil prices nurture market growth.

The first amendment would rededicate the percentage of oil revenue deposited into the Permanent Fund into the Constitutional Budget Reserve. The CBR is being depleted. It requires yearly deposits. High oil means large deposits that could balance the budget.

The second amendment develops a larger role for the permanent fund. This will allow the people to lawfully protect their dividend. The directors of the fund are advising we restructure it toward an endowment. Doing this means the fund can make a yearly payout up to but no more than 5 percent of the five-year average market value of the fund. With a long-term projected return of 8 percent, this formula inflation-proofs while establishing a balanced yearly payout.

The endowment's payout should be split evenly between dividends and state expenses. We have experienced the dividend's benefits in our private sector. The appropriation to the public sector would mirror this.

This endowment formula would distribute $1.25 billion its first few years. That means $625 million for dividends and $625 million toward the budget. Dividends would be $1,040 for a few years. Then would steadily increase. About $625 million would balance the budget, and also increase. The fund's balance would grow by $700 million yearly, then accelerate.

The constitutional amendment forming the endowment formula should mandate that the even split between dividends and state expenses are permanent. Only another amendment could change the split. The amendment controlling the split guarantees a permanent dividend program.

James Borsetti


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