Jim Crawford: Begin the PFD debate - Must Read Alaska
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Tuesday, April 20, 2021
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Jim Crawford: Begin the PFD debate

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By JIM CRAWFORD

Gov. Mike Dunleavy is right: “We need the full dividend to stabilize the Alaska economy.” 

When Gov. Jay Hammond appointed the Investment Advisory Committee, he assigned us an interesting task.  “Figure out how to use the billions that we will accumulate in the Alaska Permanent Fund to bring stability to Alaska’s budget.”  

We did just that.

When the volume and price of oil goes down, investment income generally goes up.  If we are down $1 billion or so in the oil patch, we gain a billion or so in investments.  In the Seventies, we called it the Saudi model since they were the richest kingdom around. There is a competitive difference between their cost of pipelines to get Saudi oil and gas to market and ours.  Saudi’s cost is measured in dollars per mile while Alaska’s hard costs are measured in millions of dollars per mile and 800 of those miles.   

But there are competitive offsets. We have natural high-pressure wells which enhance production. Other states are fracking the heck out of the wells at double or triple our cost.  No one seems to talk about it much but there are great economies in the Super basin of Alaska oil and gas. Alaska producers, forced by high costs, are now experts at innovative cost reduction. Our break-even is comparable to other large fields. There are distinct advantages to being in the oil and gas business in Alaska.  

Compare economies of the world. Think of the differences.  Alaskans sought balance to prosper with a huge asset base in a harsh environment and a small but hardy population. We recognized those differences in planning for the Permanent Fund. Oil and gas would not always be stable and would have ups and downs in price and volumes. But taken as a whole, the oil and gas business has brought great wealth to Alaska and to Alaskans.  And will continue for centuries.

Gov. Hammond wanted to protect the economy and the land by providing a dividend. A dividend is a reward for not tearing up the tundra or wasting the earnings of the Fund. We designed a dividend which only paid on income, the safest way to guarantee a future for the Fund. We looked at the waste of capital in Alberta, Calgary and decided that not every Alaskan project should be funded.  

We overshot solutions in some cases with disastrous results.  Our discouragement of Alaska projects resulted in just the opposite of what our economy always needs, investment capital. Not only did risk-based projects go without funding but state agencies measured their success in how much they could grow their balance sheets rather than completing their assignment of helping Alaskans.  

That must change.  Two examples leap to mind; education which provides the worst result for our children at the highest cost per pupil and our housing finance agency which charges 100% more in interest rates to landlords than homeowners.  The obvious results are deteriorating housing stock and higher rents. An agency like Alaska Housing should not be an investor of its $1.61 billion when it earns under 1% annually.  Transferring investment management to the Permanent Fund makes sense.  

Alaska’s fiscal fix is to increase production and manage our wealth wisely. We must grow both the oil and gas sector and gain a better financial rate of return on investments. Our governor understands that the people of Alaska are the ones that must control the wealth if we are to stabilize and grow our economy.  

If we follow the Governor’s careful and conservative plan, expand the economy through the dividend programs and expand our economic base, we will bring back broad-based job growth to Alaska. With a dividend at $5,100 per Alaskan, our economic engine restarts.  

I am pleased to see the focus of the Administration on long-term growth.  What the full dividend provides is investment income for Alaskan families.  Legislators, if you want to build small business, then pay the dividend.  If you want to expand our fisheries, then pay the dividend.  If you want to expand tourism in Alaska, pay the dividend. Put Alaskans to work.

The dividend is not another government handout.  Alaskans wisely chose to invest 25% of our oil and gas royalties in the Alaska Permanent Fund and directed the Legislature to invest it for us, safely, securely and to gain a market rate of earnings.  The Alaska Permanent Fund is a huge success and will grow if we control our government spending and manage our other assets for maximum yield.  Compliments to the governor for keeping his eye on the ball.  

I want Governor Dunleavy to grow the Permanent Fund to $100 billion and its earnings to $8 billion. What would you like for the Fund?  

Alaskans are well served by a governor who wants us to vote on the future structure of the dividend.  Let that great debate begin.  And thank you, Governor.  You done good. 

Jim Crawford is a third-generation Alaskan entrepreneur who resides in Anchorage with his bride of 37 years, Terri.  The Alaska Institute for Growth is a local think tank which studies and reports on and may sponsor projects of sustained economic growth for the Alaskan economy.   Mr. Crawford known as the Permanent Fund Defender was a member of the Investment Advisory Committee, appointed by Governor Hammond to plan and execute the Alaska Permanent Fund Corporation.

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  • I just forwarded a copy of this excellent commentary via email to Gov Dunleavy and I encourage each and every reader here to do the same. Let’s be that squeaky wheel that gets the oil, as they say. ?

  • If you have to steal from the people to get to your $100 Billion savings mark, it’s a worthless goal.
    Take a look at your small business collapse, State wide.
    What did Edgemond and Giessel do to the State while building the investment account?

    If you want to increase school districts accountability, then don’t give them money. Set up a State accountability bills and payroll office. Consolidate the districts in to one bills payable building. Screw the unions.

    The Governor needs to apply for the$8 Grand already stolen by the aforementioned legislators.

    When Amazon figured out how to combine more financial transactions in a month, than the state does in years , it’s time to modernize the redundancy in State efficiency.

  • Jim, I agree 100%, +, if it were possible. It’s the people’s money – not the State’s, so it does not meet the definition of a “handout”. Cuts hurt – I know that – but legislature, get real about cutting the budget. Stop stealing the people’s money. Stop trying to transfer wealth from the bush to the cities – if you really want all those socialist policies, YOU pay for them. Deep state Alaska needs to be a lot shallower. Stop trying to cut infrastructure – particularly in the bush – to reduce spending. Cut programs and employees and regulation. Those are hard things to do, but that and encourage oil and gas production is what we must do.

  • Never gonna happen.

  • Once again, oil is being vaunted as the savior of the great state of Alaska. Once again, it is likely to succeed as it did in the days of $140/barrel oil. To say the dividend is now the savior of our fair state is not likely, even though it is now the single biggest contributor to the state budget, because to reduce the value of the corpus of the fund by paying big dividends, instead of increasing its value, will reduce the total amount upon which the fund depends for growth.
    Why? Because the dividend, historically, has only prompted a relatively small rise in spending for a relatively short period of time while the state molders with delayed maintenance backlogs, pie-in-the-sky investments schemes (think Susitna Dam, Anchorage fish processing plant, and the upcoming bad AIDEA idea to buy leases in ANWR, the McKenzie Point rail spur, and the Ambler road, which would have been built long ago if it were profitable for the mining companies that will benefit therefrom), no new revenues to replace those which have been rapidly fading away, diminished savings in state funds, which have been rapidly fading away, and no new, reasonable ideas on how to proceed into the future.
    Vague promises of future prosperity through expanding the economy by depleting the Permanent Fund’s spendable accounts simply do not pan out. The percent of market value is, at the very least, a reasonable way to manage the account, since that type of investment has been used successfully by many organizations in the past and wouldn’t threaten the account itself, but it won’t give Alaskans the bonus so many of us are hoping for.
    The way to build the state it to invest in a top quality public school educational system and university in order to provide a quality work force for businesses interested in locating here. The next thing is to catch up on all the state’s delayed maintenance, which has gone unfunded by legislators interested in cutting budgets without thinking past the next election, and to provide upgraded infrastructure to support a thriving economy that provides recreational and cultural opportunities for all Without these, what businesses would want to relocate to Alaska?

    • Businesses relocating to Alaska is a joke. Costs are through the roof. Work pool is small, cost of living is high, goods have to be shipped here, selling market has to be shipped to, high property taxes… Please explain how any sane company would ever relocate here. That’s the pie in the sky everyone puts out. “If only we diversified our economy”. The only businesses up here will be tourism, local support businesses and oil. Sure, some locals will make local businesses (health care, restaurants, if any are going to be left after our assembly gets done, etc.), but they serve those who actually live here for one of the 3. I leave gumbrment out because they make no business, they only move money from one of the three to government employees. Remove oil and tourism, the local support businesses will dry up and you will have a ghost state. The university is a joke.

      • Well, it’s obvious you don’t have any faith in the future of Alaska.
        There are any number of thriving cities near the 61st parallel that seem to succeed in spite of the climate and transportation costs.
        They are characterized by high quality educational systems, a diverse, educated, skillful workforce, many cultural opportunities, social support systems that even the playing field for everyone, and effective governmental systems that have the support of the people who live there. Plus, they pay taxes. They buy in.
        What do we have in AK? Oil, tourism, local support businesses (sound familiar?), and government, although it’s mostly military that is the “government” business in Alaska, and no personal state taxes.
        What are we lacking? Apparently oil, and local businesses, and tourism aren’t enough. If we continue to believe that we can’t change, or shouldn’t change, or don’t need to change, we will continue to be dependent on natural resources extraction, held under the thumbs of the multi-national businesses that exploit those resources, and stuck in the status of a “third world” territory.

        • Pie in the sky again. Give me an example of such a business or industry who would profit from moving up here? Why would a manufacturing company ship all its raw materials up here at expensive rates, make them with workers who are few and expensive to hire, build expensive buildings in a harsh climate that are expensive to heat and are taxed like mad, just so they could ship its product back out because very little would be used locally? Fish Plant ringing a bell? The stupid state built the processors a plant but it was STILL cheaper to just take it to Seattle and process it there…. and that’s a product that originated here. You can believe in rainbows and unicorns all day, but logic and the past 50 years of history show the truth. Businesses aren’t here because it’s not profitable.

          I love how you think “social support systems that even the playing field” will bring businesses up here. That’s not what businesses are looking for at all. They are looking for profit. If they aren’t, they go out of business. So you want to raise taxes on workers so it is even more expensive for a company to hire someone. I’m sure that will draw all kinds of companies up here. (Mr. CEO ” Well, we weren’t going to move our business to Alaska, but now that they have raised their taxes even higher we will reconsider it.” HAHA… That’s a good one.) Businesses are fleeing NY and CA because of higher taxes. Lets double down on stupid and assume it will be different somehow up here.

          You can’t compare us to other cities on the same latitude. Different countries, different economic systems, rules, resources…. it is foolish to even think because Norway has a town that is doing well at our latitude, we could. It’s not the latitude that is the issue, its the remoteness from the rest of the country and a thousand other factors that make it different. That’s like saying Bethel could be just as big and thriving as Anchorage because they are on the same latitude. Right…..

          • Well, to respond to one simple point, businesses are, indeed, looking for profit. They seek places where they can find workers who can fulfill their needs, human capital, if you wish to call it that. If the most you hope for is resource extraction, you can find that in the workers here, but what do you do when the resources are gone, or no longer profitable?
            We need a work force that will attract the businesses that are profitable in the future. With telecommunication, there are many possibilities. With resources, once gone, there are none. The resources of the future are our people. Denying them the means to achieve the skills needed in the future is the same as denying them the chance to succeed in the future.
            Once the oil is gone, or no longer profitable, the economy based upon it will collapse. Once the need for skilled, educated workers is realized, it can be built upon and fostered indefinitely.
            And, in the end, taxes have nothing to do with it,other than supporting the future work force. Look at California, highly taxed and highly profitable and highly educated.

  • Thanks, Jim. If Dunleavy was to get out the $5K dividend this year, what is it going to cost the state? I’m in agreement with you, but it will be a hard sell to the Legislature.

  • Hard to hope for the future when our government is an entrenched bunch of petty fiefdoms.

    • Marijuana addicts will absolutely love an extra $5K to light-up for. Alcoholics will grow the booze distribution biz with their $5K. Cigarette smokers will use their $5K expeditiously in 22 months. Can we just pass a state law and get the casino business rolling in AK too? PFD money for craps and blackjack. Would all that work for ya, Jim?

  • What a load of nonsense! I don’t know where to begin.
    First of all I get so tired of people saying that they speak for Jay Hammond as if he was the second coming.
    Jay Hammond was an ordinary man with the normal range of good and awful ideas like every other politician
    Jim deserves zero credibility for his radical notions. And I’ll have plenty to say in rebuttal when I have more time.

  • Chris, the fund was created by Oral Freeman of Ketchikan. It’s purpose was to retain some of the oil wealth for the “little guy”. The grocery store clerk or the fella that changes your tires. Oral knew that fat cat Engineering Firms, State Employee’s Union Leaders, Teacher Union Honchos and well, any group that can afford a lobbiest would get the juice. It is the people’s money Chris. Give them their statutory dividend. ( or have the cajones to change the statute).
    If the State needs revenue, the legislature has plenary power to lay a tax upon the residents of Alaska. Funny how they would rather steal the PFD instead of laying a real tax…

    • I too am “older than Alaska” (the State of Alaska at least). I saw firsthand the shenanigans at the birth of the Dividend leading to the Zobel lawsuit. I got lectured first-hand by Oral Freeman when I made a proposal to provide an equity building strategy for each resident of Alaska after the court defeats of the original Dividend program. He obviously did not understand my intent. Dave Rose was very graceful to me after Oral”s tirade. These men that designed the original program, including Hammond were dead wrong and the Alaska Supreme Court and U.S. Supreme Court proved it. 40 years later, the same greed and avarice drives public sentiment of the so-called “entitlement”. Stoked by charlatans and Santa Claus Republicans, the State has driven us onto the rocks. And finally, how can anyone call themselves a conservative when promoting taxes to sustain funding of the Dividend? The madness continues.

      • Chris, I appreciate your comments regarding the original longevity requirements for the dividend. Those requirements were tossed out and an equal distribution was then made.
        Fact is though that as a “conservative” you should also be an “originalist”, meaning what was the intent. Clearly the intent was for all Alaskans to share in the oil wealth and as Oral would say, ” to keep the governments mitt’s off the money”.
        The dividend isn’t an entitlement anymore then a stockholder receiving a stock dividend.
        Thanks for your thoughts!

        • The generation gap between 1976 “originalists” and 2021 eco-snowflakes, who were publicly schooled and attended the UA brainwashing laboratory, is what strikes the debate. The old dudes and gals in the Hammond-era legislature were trying to save money for future generations, while giving them some spending money on the side. Well guess what? Those future generations are now grown and running the legislature. They prefer growth in big government and advocate for income taxes. And, they hate the companies that brought Alaska the oil wealth, They prefer the preservation of some polar bears and a few caribou. How ironic that original intent was foiled in 45-years of lingering debate. How many of our young politicians actually passed a college course in Economics? So, it appears that holding a money reserve for the ages depends on the way our children are taught.

  • Thanks Jim! You have more credibility than most on this subject.

  • Expanding the dividend to increase tourism makes about as much sense as growing the corpus by giving away all of the earnings.

  • the state has been paying a dividend for 40 years and the Alaska economy is still not stabilized. You and Dunleavy think the answer is just give out more money. What we have is created an entitlement. People like me invest their dividend others spend it and wait for their next check. Either way neither has proven to stabilize the Alaska economy.

  • The first thing is to cut the budget, the foolish spending in Juneau has to stop. Go back to the basics of 1960, eliminate all the useless social programs.

  • I haven’t received OR applied for a dividend for years since it finally occured to me that I had a job, was making a good living, and didn’t need or deserve WELFARE !! There are some who probably do> I wish there was a way to establish a needs based program.
    The state must make the hard decisions to cut it’s budget–that means what private industry does in such times. Can the rediculous nonsense projects and the hipaid people involved with them. Reduce payrolls by cutting wages and reducing people-I know this means getting down and dirty with the public unions but everything is truly negotiable when you’ve got the guts to do it.. I’m a contractor of 52 yeas and that’s how you survive. Don’t give me the stuff about hurting good people. The truly Good people will find a way to survive that’s what the “free enterprise principles” (which have built this country) are all about. We will survive but we should not have to while paying for the current state “do good” projects.
    Don’t know how to transmit to the gov but hopefully he is reading.

    • I agree with you on most of what you said, but you don’t understand the dividend if you think it’s welfare. Have you ever owned a rental? Did you decide to not accept rent from your tenants because you didn’t believe in welfare? Did you decide to not charge rent because you had a job? That is the exact same thing. Dividend money is not government money. Believe you me, if it was, it would have been spent 10 times over already. They are fighting tooth and nail to take it. Your dividend is because you own rights in an asset and you are getting paid for that asset. Few people seem to understand that, especially because the way it is now paid due to the courts incorrect rulings. You get a royalty from the oil that you own. Yes, you own it simply because you are an Alaskan, but that makes no difference. If you were willed a rental when you were 3 years old from your great aunt betty, you still would be entitled to the rent payment. Now, if you willingly choose to give your rent payments to the morons in Juneau, well, that’s up to you.

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