Alaska editorial: Some fund earnings should be used for community dividend

Posted: Monday, November 28, 2005

This editorial first appeared in the Voice of the (Anchorage) Times:

Gov. Frank Murkowski's proposal for an annual community dividend is a good first step, but far too timid.

The governor wants to draw the money for community dividends from the earnings of the Amerada Hess account within the Alaska Permanent Fund. The account is a $425 million nest egg created from settlement of lawsuits against 15 oil companies on valuation of oil flowing through the trans-Alaska pipeline.

By law, the settlement money can't be used to calculate individual dividends, and it represents only a small part of the $31 billion in the overall fund.

The state should be using the formula proposed by former Gov. Walter J. Hickel to use half of the permanent fund earnings for individual checks and the other half for community dividends.

Murkowski's plan initially would provide Alaska's communities, many of them hard-pressed for cash, with just $27 million. The governor also wants the state to make retirement program contributions on behalf of the communities - contributions totaling $38 million next year. That would bring total cash support for communities to $65 million.

The governor is treading lightly to avoid angering those who think permanent fund earnings should be used only for individual payouts. The fund has become something to worship and not to use for its original purpose - to earn money to meet public needs.

The individual dividend was an afterthought, but has come to dominate the public agenda so much that few politicians will brave the wrath of those who worship the money and want only to get it into their own pockets.

Right now, calculation of fund earnings is constrained by the fact that only realized earnings can be used in the formula. That means that only cash flow from some investments and earnings on investments that are sold can be used. Since some of the best-performing investments are held and allowed to grow, the formula ignores some of the most important growth that would otherwise increase the amount available for distribution.

The permanent fund board and Murkowski urge that earnings be calculated as a percent of the overall market value of the fund, thus encouraging the holding of good investments.

They suggest that 5 percent of the fund's market value - averaged over the previous five years - be spent each year for purposes such as dividend checks and any school or community grants.

If that were done last year, about $1.3 billion would have been available for individual and public uses. Since only $532 million went for individual dividend checks, there would have been little or no impact on the amount going into individual bank accounts. Under the Hickel formula, the checks could even have been higher.

These are changes that must be made if the state is to use its financial resources wisely. And now is the time to start.

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