By DAN SULLIVAN
As the State Legislature grapples with how to deal with the future of the Permanent Fund, I propose a solution that is a hybrid of some of the ideas that have been submitted past and present.
Two decades ago, then Sen. Jerry Mackie proposed distributing half of the Permanent Fund to the people, which would have been a significant windfall for eligible recipients and no doubt would have had a significant positive impact on the state economy during a time of low oil prices and severe stress on the state budget.
The earnings from the remaining 50% of the Fund would have been available for state government spending. This was proposed when none of the earnings had been previously used for state spending.
Currently, Sen. Natasha Von Imhof has proposed taking $6.7 billion dollars from the Fund earnings and setting up a new Permanent Fund Dividend account whose earnings would be strictly for dividends. Under her proposal, up to 5% of the earnings from the remaining $75 billion would be available for government spending.
We need to think bigger for Alaskans. I propose allocating $28 billion (about 35% of the total fund) to the new “People’s Fund,” an amount equivalent to about $40,000 per person, assuming an eligible population of 700,000 (last year approximately 670,000 Alaskans qualified for a PFD so I rounded up).
The remaining $53 billion remains in the existing Fund and under a traditional POMV formula, up to 5% of the value can be appropriated by the Legislature
This produces about $2.65 billion for government and thus may require additional cuts to state spending for a balanced budget. I share the belief of many that there are hundreds of millions of dollars of additional cuts that could be made to state government to achieve that balance. Higher oil prices and increased production that we are currently experiencing will help close any gap as well.
Similar to Sen. Von Imhof’s proposal, the $28 billion People’s Fund would be invested as a separate account within the Permanent Fund. A draw of 5 percent of the $28 billion corpus would yield $1.4 billion. Divided by 700,000, the initial dividend would be $2,000, near the historic high.
Just a decade ago, the Permanent Fund was worth about $41 billion. Through wise investments and the annual deposit to the Fund from 25 percent of mineral/petroleum royalties (approximately $100 million last year), the Fund has doubled over that ten-year span.
Using the same percentage I have proposed for the two funds, 35 percent of future royalty deposits would go into the People’s Fund and 65 percent into the government fund. Assuming the continued good stewardship of the Permanent Fund managers, we would see significant long turn growth in the principal of both funds, even with the inevitable market corrections that occur.
Here’s where it gets fun. Channeling the Mackie Plan, eligible dividend recipients could choose to take $25,000 as a one-time payment and relinquish any claim to future dividends. While this would lower the corpus of the new fund, it would also proportionally eliminate the number of folks drawing a dividend.
For example, if 200,000 people took the cash, that would equal $5 billion dollars. The People’s Fund balance would now be $23 billion. A 5 percent draw would equal $1.15 billion and divided by the remaining 500,000 eligible Alaskans, equals a dividend of $2,300. Not too bad.
Some folks planning to leave the state anyway would take the money and run. For those forced to move due to job loss or other economic reasons, this would help them get a new start.
Others may simply prefer to make their own investments or use the money to help re-open a business shut down by government during the pandemic. Some may spend the money unwisely. Your money, your choice.
If parents decide to take the payout for the whole family, kids could have their money kept in a custodial account until they are 18.
There is no doubt that such a payout provision would be a large and timely stimulus to the Alaskan economy.
This proposal guarantees adequate funding for government and guarantees that the dividend program is sustained. As Governor Dunleavy has proposed with his 50/50 plan, this would need to be enacted as a Constitutional amendment requiring a vote of the people, but it would end the debate about the purpose of the Fund once and for all.
Finally, as the Governor has also proposed, a true and enforceable spending limit would also have to be enshrined in the Constitution to prevent overspending when our pockets are flush with cash. Old habits are hard to break.
I believe this proposal has something for everyone and gets us closer to what can realistically be agreed on by our elected officials. It also properly involves the citizens of Alaska who would get to exercise their right to vote on such an important decision.
I have been part of the chorus supporting the original statutory formula for calculating the dividend. I don’t think our laws should be so easily ignored. I merely offer this as a compromise that might get us off high center and back on the road to a sustainable future.
What say you?
Dan Sullivan was mayor of Anchorage from 2009-2015