Dunleavy's giant dividend puts Permanent Fund at risk
In a open letter before Election Day, Gov. Bill Walker called on his successor to stick with the bipartisan legislative action last spring that changed the way the state funds government.
With the election of former Sen. Mike Dunleavy as governor and more Republicans in the state House, the compromise plan to limit withdrawals from the Permanent Fund to 5.25 percent is already on the rocks.
Prompted by the collapse in oil prices, legislators reluctantly approved a plan this year to use up to $1.7 billion from the Permanent Fund to pay for government operations.
“Making the choice to restructure and save the Permanent Fund was one of the most important steps, and most difficult acts of leadership, to build Alaska a stable fiscal path,” Walker said last week.
“Our ability to fund troopers, courts and schools is no longer determined solely by the price of a barrel of oil,” he wrote.
Legislators and Walker agreed on a $1,600 dividend this year, but Dunleavy wants to double that amount next year. He also wants to give Alaskans a one-time payment of $3,700—at a cost of $2.4 billion—to make up for dividend reductions in 2016-2018.
The $6,700 per-person payout, if approved by the Legislature, would demonstrate that state leaders lack the discipline to limit Permanent Fund withdrawals to a sustainable level.
Many Republicans who would have scoffed at this multi-billion-dollar spree six months ago as a raid on the Permanent Fund are going to have a hard time refusing to go along with one of Dunleavy’s major promises.
Add to that a withdrawal of $1 billion or $2 billion to pay for government and this approach could devour more than one-third of the Permanent Fund earnings reserve in a single year, a reckless spend-it-while-we-can maneuver. When the stock market takes its next big tumble, the rest of the reserve could vanish.
The Dunleavy dividend of $6,700 would place immediate desires above the interests of future generations.
Dunleavy and GOP legislators call themselves conservative. If they don’t do the math on the long-term tradeoffs for Alaska between spending and saving, and the lost earning potential of $2.4 billion, it will be clear that they are the last of the big time spenders.
The state has blown $14 billion in savings since the 2014 collapse in the price of oil, nearly draining the major accounts outside the Permanent Fund.
But the campaign promises of 2018 raise serious questions about whether Alaskans have any interest in a “stable fiscal path” if it means postponing gratification.
In this election season, mercifully at an end, candidates for state office once again elevated the dividend to the leading place in Alaska political discourse, leaving no room for honest discussions about the state budget and taxes.
Dunleavy and many other winning candidates pandered themselves into a corner with pledges for bigger dividends, no taxes and the preservation of every program that people like.
They haven’t demonstrated how this is going to work, reflexively claiming that resource development will unlock the door to prosperity. Alaskans love that bromide, which will be a central theme of the Dunleavy administration.
As former Gov. Frank Murkowski put it in his first address to the Legislature in 2003: "What is our plan for increasing revenue? Well, ladies and gentlemen, in a single word: oil."
Oil prices have fallen in the last month from $85 a barrel to near $71 a barrel, but that remains higher than predicted. If those prices stick for the fiscal year, the state will take in hundreds of millions more than estimated, which would cover or reduce the deficit. That could temporarily rescue our political leaders from the consequences of their rhetoric.
One measure of the giant disconnect between Alaskans and the size of our budget challenge is that Dunleavy keeps saying that the Permanent Fund earnings reserve contains $19 billion. He repeated this during the final debate last week with Democrat Mark Begich.
The earnings reserve contains $17 billion. These numbers are so large and abstract that a $2 billion error goes unnoticed.
A lot is uncertain about what happens next, but one question won't go away: When will elected officials recognize the impossible math underlying promises to raise dividends, draw more from savings, continue state services, avoid taxes and preserve the Permanent Fund?