By JON FAULKNER
It is time to put Alaskans first and fix the PFD formula in our Alaska Constitution.
We hear many objections why this is not workable, but none that honor the will of the people. Our Legislature is accountable for this impasse.
In short, a showdown looms: The people of Alaska vs. the Legislature. Do we trust the voters with the Permanent Fund, or do we stand by and watch the political process destroy this legacy?
The adage “follow the money” leads us to the problem, and the solution. The big rub to politicians is the PFD. Every year since Gov. Bill Walker defied the then-existing law and bypassed 40 years of legislative practice, politicians have eyed the Permanent Fund with increasing appetite for your dividend.
Former Gov. Jay Hammond would be upset over this turn of events. He warned, “Of one thing I’m sure…as go dividends, so goes the Permanent Fund. Cap, reduce, or eliminate the PFD and the Fund will follow suit.”
This is wisdom from a man who loved Alaska, who understood the meaning of “sustainability” and that oil wealth belongs to our people in common, for all generations, and that a fair return on that wealth belongs to residents. Hammond knew that once politicians found a chink in the Permanent Fund’s armor, they would invent endless schemes to grab it. His solution: A dividend that was large enough to incentive Alaskans to resist systematic plunder and to vote out politicians who mismanaged the Fund.
A constitutional amendment must pass both houses of the Legislature so consensus is essential. But it must also garner a popular vote, so political compromise should consider the people’s wishes.
Fortunately, years of discussion has focused the central debate. It now centers on the right percent of market value (POMV) to draw for all expenses, including inflation proofing, vs. honoring the “Original Formula” for dividends. But first, where are Alaskans in agreement?
Few dispute anymore that some share of earnings from natural resource extraction belong to Alaska residents. Alaskans embrace the concept of an “owner state.”
Moreover, there is consensus that the PFD is not welfare. True, Alaskans don’t labor for their dividend, but we own the land. And although some spend their dividend recklessly, most spend it wisely.
Alaskans find common ground with economic data that shows PFDs directly distributed to Alaskans have far greater economic impact to our state and local economies than money doled out to the public sector. We agree with the Institute of Social and Economic Research that lowering dividends disproportionately hurts the poor and that reducing our dividend by $1,000 pushes thousands of Alaskans below the poverty level. Likewise, Alaskans generally agree that among various policy choices to reduce spending, like reducing the state work-force or capital spending, cutting the PFD is the least favorable option.
Also, Alaskans begrudgingly accept the Supreme Court ruling that annual PFDs require legislative appropriation. But there was legislative consensus for 40 years before that to follow the law and deposit PFD allocated earnings directly. The practice of “earmarking” or automatically appropriating funds is common practice, as $1 billion is declared “off-limits” via bi-partisan truce. All Alaskans expect is equal regard for the PFD.
We also have consensus on inflation proofing. The Legislature inflation proofed all but two years between 1980 and 2015. Yet between 2016 and 2018, it failed to inflation proof five out of eight years. 2021’s record deposit of $4.18 billion helped offset the deficiency but inflation is real and Alaskans agree inflation proofing should not be optional.
Finally, Alaskans share a profound sense of gratitude, both for our forefathers, and for the opportunity to show the world how to honor future generations by saving—not squandering—our inheritance.
Consensus on budget priorities is not necessary to pass a Constitutional Amendment. Budgets are divisive, and a Legislative function. Disagreements on spending will always exist, as will lobbyists, special interests, and elections. The PFD is too important to be enmeshed in this.
With respect to the PFD, most agree funding must be sustainable and yet the dividend amount can fluctuate. Thus, the original formula is ideal, insofar as it was 100% funded from realized earnings, saved and set aside for dividends. It was rock-solid sustainable until lawmakers wanted more.
As a policy alternative, lawmakers now propose draws based on “Percent of Market Value” ostensibly to stabilize revenue streams, and to treat the dividend as part of its annual budget. This is understandable but problematic as recent history shows, because it projects what is expected based on past performance and then bakes it into a budget, regardless of whether the revenue materializes or not. This leads to unfunded budgets.
Witness the returns of the Permanent Fund over the last five years: Barring the single year sell-off of 2021, an historic outlier, the other four years averaged only 3.047%–not enough to cover inflation and expenses. Lawmakers would need a fiscal cushion to protect the PFD.
The original PFD formula is sustainable and provides for adequate inflation proofing, but is the amount too high? Consensus can derive from long standing, global precedent, which is the standard 12.5% royalty fee. This amount is paid to virtually every subsurface estate owner worldwide. Moreover, only 25% of all mineral-based revenues go into the Fund, while government takes 75%. Thus, the 50% of earnings (averaged over 5 years) mandated for the PFD derive from only 25% of the State’s royalties. Thus, the 12.5% of mineral-based earnings for Alaska residents as their royalty share is a wonderfully elegant solution with global precedent.
Finally, in forging a path forward, Alaskans should heed the advice of those who created the Permanent Fund, like Oral Freeman and Hugh Malone, for without their wisdom Alaska would not have a Fund. These Alaskans rejected political interference, schemes to leverage the Fund, to invest in regional infrastructure or high-return ventures that invited risk.
Alaskans are keenly aware of the challenges we face of declining oil, of downsizing government and diversifying our income sources. But we are amazingly unified in our desire to pass a constitutional amendment that protects the original PFD formula, and we trust the people will ratify it.
Jon Faulkner was born and raised in Alaska and owns businesses on the Kenai Peninsula.
Great points, Jon.
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Would be helpful to see your proposed amendment.
How? The legislature will never vote it in, close to half the state is ready to give it up, and when we had a chance for a Constitutional Convention-we balked.
It would be helpful if John included language for his proposal. And I don’t mean back-of-the-napkin wannabe fuzz. I mean professionally drafted language his legislator of choice can formally request from Leg Legal.
The PFD is in the Constitution, and it is the most amended portion of the Constitution. It just isn’t worded to achieve what John and perhaps others desire.
In less time than it takes to write an Op-ed, anyone can call their legislator and ask to have amendment language drafted for review and perhaps publication or even filing.
Why is this important? 1) Constitutional language is permissive, granting power to the Legislature or executive branch. 2) Making language available for citizen review helps ensure it will be understood to achieve what you desire. The actual words are critically important and Leg Legal, the State’s official “keepers of the style manual” for statutory and Constitutional language, can best fit your ideas into the language used in the 20k pages of existing statutes and Constitution.
3) Having language properly drafted advances an idea towards enactment.
Constitutional process is to call an “Assembly” and not a legislative “session”. The assembly is the creative process to change the “laws” of creation. Any Alaskan resident can “Go” and is held any accessible place probably Anchorage. Each district chooses the Constitution convention delegate. It may or may not be a legislator. That is up to the people. Each district chooses its delegate to help bring Alaska’s Constitution in closer conformance with the US Constitution.
The legislature will never pass an amendment, so we must do a ballot proposition. Who will front the money for signatures and fight to pass it?
All the big money and businesses in the state, ie contractors, nonprofits, banks, school districts oil companies and many more will spend a million plus to defeat this.
I hope whatever direction you choose works and hopefully save the Pfd for future generations.
Eddie Burke
Yes they want that money and will stop at nothing to get it.
Its good in many ways. Right now we have a governor that has abused the PFD in so many ways and the management of the PFD. He put the HHSS Commissioner in as the Revenue commissioner and then put him, Adam Crumb on the PFD board after Adam Crumb had a good chance to see the loop holes. Then Dunleavy put Thune in the PFD Board as reward for the the “other” energy law put forth from DEC for nuclear energy. Now Thune sits on the PFD board. The “Three Bears” bulging growth happened through the chain of events with Dunleavy as the remover and the taker of the moneys to create a huge investment for the Three Bears marketing to Alaska, so who sits on that board for the sake of PFD growth to the Alaskans? We have a “dark” investor group that doers not tell it like it is with almost a billion taken from the PFD for investing in homes that are in foreclosure and owners to sell to the investment group. this is in and out of Alaska. Do we hear a statement as to the growth and earnings to the people of Alaska? NO! That one is hidden also. When you see the theft of the PFD and add the firing of the Administrative Officer of the PFD who had a reputation for “following the law” to the Senate and the House of our legislature, what does it tell you about the Governor, his decisions and the people who do him favors ? Is it any wonder the State Attorney General, who is a great friend of Dunleavy, is making racket that all state persons making bad decisions will have his law department protection ant no cost to the person because the State of Alaska will pay for their bad decisions in case it appears they broke the law. How much of the PFD moneys is Dunleavy and friends enriching themselves with and why don’t we hear from an OMBUDSMAN on these events? So far, this Administration of Dunleavy’s is the worst and surpasses the Walker Administration by miles and miles of abuse.
I am totally convinced Stedman and Giessel are heading a pack of crooks Bent on using the PFD as their own slush fund .
Next to having our legislature meet in Juneau, the PFD is the worst public policy decision in the history of state.
As if that’s going to stop the wolves?
Never thought I would hear a conservative asking for Universal Basic Income. I support using the PF for services that are already constitutionally mandated, keeping all of the $$$s in State
And you didn’t. The PFD is not UBI. The Dividend shouldn’t be the government’s spare fund, but it should also have more substantive requirements to receive.
We have been submitting to taxation without representation by the Feds, State and local governments……….the government has sold a solution to solve all problems is just feed the government more money…….meanwhile EVERY BUSINESS ENTITY NOW OWNS A NONPROFIT, THE GOVERNMENT GIFTS THEM GRANTS (from the tax revenue) now the people want to just give more money to the government? SERIOUSLY?
How exactly does constant monetary stimulus actually affect change or solutions ?
Governor Dunleavy tried to get a constitutional amendment on the ballot when he first was elected. The powers in the legislature blocked it from even being read. Until there is another way to get a constitutional amendment like this on the ballot it is regrettably, a dead issue. This is not Universal Basic Income, it is like a stock dividend issued to the stockholders, the Alaskans. Those who do not understand this concept need to read Chapter 2 of the Governor’s Solution, written by the late Governor Jay Hammond. It was his final thoughts on the issue and was written shortly before he died.
The PFD should not be enshrined in the Alaska Constitution as a free cash handout made into a basic human right. The PFD should remain as a true “dividend”.
With a private company, a “dividend” is paid to shareholders when the company has paid its bills (workers, materials, maintenance, utilities, etc.) and there is a profit or surplus left over.
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If a free cash handout is stuck into the Alaska Constitution, a state income tax will eventually be imposed by the state legislature to pay for essential services and infrastructure. This will cause the PFD to be effectively financed by slapping taxes on working people, and will become an income-transfer situation. This will encourage free-loaders and drug abusers to migrate to our state to get the free cash handout that they think they are entitled to. This will morph our PFD from a true and honest “dividend” (funded by surplus), into a PAP (Public Assistance Payment).
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There is nothing necessarily wrong with a tax supported “Public Assistance Payment” (or welfare), but it should only go to the truly needy or disabled, and generally should be temporary to help down-and-out people get back on their feet and become self-supporting.
The legislature will violate it, and the courts will cheer them on
It’s time to kiss the PFD goodbye. Then, after a few years of spending increases, a state income tax. Maybe after the wealth of our state is totally squandered then special interest groups will loose interest and the political hacks will move on and we can have a representative government again. Being poor has its advantages. Pre-70s Alaska wasn’t all that bad.
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