PFD Reductions Subsidize the Unorganized Borough

By Ed Martin, Jr.

Alaska’s Constitution promises equal protection, maximum local self-government, and uniform taxation within units of government. Yet Alaska’s local governance framework—unique in the United States—creates an inherent disparity between organized boroughs, which must assess property at “full and true value” and fund schools, public safety, planning, roads, and local services, and the Unorganized Borough, which pays no local taxes, conducts no property assessments, and depends entirely on State general funds for many of the same services.

For decades, this imbalance was tolerated as a product of geographic remoteness and historical development. However, since 2016, the Legislature’s repeated reduction of Permanent Fund Dividends (PFDs) has introduced a new constitutional tension:

PFD reductions function as a statewide tax, borne equally by residents of both organized and unorganized areas, while only residents of organized boroughs also bear local property taxes.

This creates a two-tiered burden that the framers of Article X never anticipated.

Constitutional Framework: Equal Protection and Local Governance

Article I, Section 1: The Equal Protection Clause

Alaska’s equal protection clause is broader than the federal version. It prohibits arbitrary disparities in how similarly situated persons are treated by government.

Article X: Structurally Different Units of Governance

	Organized Boroughs	The Unorganized Borough
Local Government	Exercises local taxing and assessment powers	Lacks local government; State provides services (Art. X §12)
Property Taxes	Required to annually assess property at full and true value (AS 29.45.110)	No obligation to levy taxes or assess property
Infastructure	Must provide education funding, planning, public facilities, etc	No local contribution to schools or public infrastructure

Because the Constitution itself created the distinction, courts hold that residents of organized vs. unorganized boroughs are not “similarly situated” for equal-protection purposes.

This is why litigation challenging the tax disparity has repeatedly failed.

The “Full and True Value” Mandate and Disparate Local Burdens

AS 29.45.110 requires that municipalities assess property at market value. This statutory command forces inflationary increases in taxable value, produces higher annual property taxes regardless of local income conditions, applies only to organized municipalities.

These mandates reflect the historical assumption that organized boroughs would build their own revenue bases while the unorganized borough would remain sparsely populated with minimal governmental needs.

That assumption is no longer accurate.

PFD Reductions: A Statewide Tax That Magnifies the Disparity

Since 2016, Alaska has diverted billions in PFD payments to cover state spending.

As recognized by economists and the Alaska Supreme Court (Wielechowski), the withheld portion of the PFD is functionally a statewide tax collected from all Alaskans equally. But the benefits of this revenue are not equal. Services funded with diverted PFD dollars include:

• Public education
• Troopers and VPSOs
• Public health
• State infrastructure
• Welfare programs
• Rural aviation
• Transportation system subsidies

These services are disproportionately State-provided services in the Unorganized Borough. Residents in organized boroughs help fund these services both through local taxes and reduced PFDs.

This creates a two-tier fiscal burden:

Resident	Local Taxes?	Statewide PFD Reduction Tax?	Net Burden
Organized Borough	Yes (property + sales)	Yes	Highest
Unorganized Borough	No	Yes	Lowest

This is the first time in Alaska history where organized-borough residents are effectively taxed twice, while unorganized-borough residents are taxed once.

Constitutional Tension: Equal Protection vs. Article X

Although courts historically allowed the disparity because “similarly situated persons” analysis distinguished between the two borough types, the introduction of a statewide tax (PFD reduction) changes the constitutional landscape.

Unlike local taxes, PFD reductions apply to all residents equally. The previous argument that unorganized residents are “not similarly situated” weakens because all residents are equally subject to the PFD reduction, but only some must additionally pay property taxes.

This undermines the integrity of the equal-protection framework because the statewide tax (PFD reduction) funds services that only some people receive without contributing locally.

The Legislature has effectively shifted the cost of unorganized-borough services onto residents of organized boroughs. Is this a form of unconstitutional cost-shifting? Probably not under current case law. Is it legally permissible but inequitable taxation? Absolutely. Is it contrary to framers’ intent for “maximum local self-government”? Strongly yes. Is it politically volatile? Undeniably.

Why Courts Would Uphold the System (For Now)

The Alaska Supreme Court would likely uphold the current dual-burden system for the following reasons:

1. Article X’s textual framework explicitly allows borough differences.
2. The PFD is not constitutionally mandated in any specific amount.
3. The Court rarely invalidates legislative fiscal policy.
4. The framers left revenue structure decisions to the Legislature.

However, Courts can uphold a system while acknowledging it has become fundamentally unfair. This is the position Alaska has reached.

The Path Forward: Legislative Responsibility

The Constitution does not require equal tax burdens across boroughs. But the Legislature has the authority and the responsibility to correct inequities caused by mandatory full-value assessments, lack of taxation in the Unorganized Borough, and PFD reductions functioning as a statewide tax.

Available remedies include statewide assessment in unorganized areas, allowing organized boroughs to cap assessments (e.g., 5%), restoring the statutory PFD formula to eliminate the hidden subsidy, and modernizing Article X through constitutional amendment.

These are legislative policy decisions, not judicial ones.

The combination of a mandatory tax and assessment burden on organized boroughs, zero local tax burden in the Unorganized Borough, and a statewide tax via PFD reductions has created a dual taxation system never envisioned by Alaska’s framers. While technically constitutional, the system is inequitable, unsustainable, in conflict with the promise of “maximum local self-government,” and politically corrosive. Legislative reform is both warranted and overdue.