Protecting the Permanent Fund!

Contributed by Representative Wes Keller

Alaskans are paying an incredibly high price for government, yet there seems to be an ironic lack of a sense of ownership.   



Article 9.15 of our Constitution is explicit: At least 25% of natural resource revenue shall be placed in the well-known permanent fund (PF) that cannot be spent in the normal legislative process. 

What is often forgotten, the remaining unrestricted 75% goes directly into the state checkbook driving the most expensive state government in existence. The entire 100% comes from monetization of the people’s resources to be managed for the “maximum benefit” of the people (Art 8.2).

Recently we hear a lot of hype from some, those who benefit most directly from high state spending. They insist that because of the fiscal crisis, the legislature should spend part of the PF just as if it were part of the unrestricted 75%. 

This approach is coming from the highest levels of Alaskan political society that directly benefit from state spending. Specifically, the targeted pot of money is the coveted accumulation of returns on investment of the PF (the gray slice in the pie chart) that is residual after payments of PFDs. It is a huge amount of money compared to what could be raised by all tax proposals combined. 

To understand better, look at the pie chart. The blue portion of the pie represents returns from natural resources that have been put directly into the state checkbook and spent over the past 40 years. It is the other 75 %. The orange portion of the pie is the PF (the 25%) that has the constitutional legislative spending restriction. The gray slice is the part of the PF, the returns on the investments of the PF, called the “Earnings Reserve” (ER or ERA).  

Arguably, the gray slice (ER) also has an inferred legislative spending restriction, or not, depending on your bias. The great debate is whether the spending restrictions apply to only the investment itself (the PF, the orange slice), or whether the returns on investment (ER, the gray slice), can simply be spent like the 75%. The recent “catch phrases” we see and hear: “Restructuring the PFD”, or “Capping the PFD”, or even sometimes “Protecting the PFD”,  are intended to build public support to allow spending part of the ER as if it were part of the unrestricted 75%. If yes, then we must decide how much? And for what?

Until Alaskans have a sense of ownership of our revenue and understand better what it is buying, I am adamantly opposed to spending any of the ER (PF) by the same standards we have used to spend the 75% (the $90 billion). It offends me when revenue derived from natural resources is called “free money”.

It also offends me when we are told we Alaskans don’t pay our fair share, totally disregarding our constitutional “ownership” of the 75% that currently funds state government. PFDs are paid out of the ER (gray slice). If the ER is too large, then we should increase the PFD size to balance it.   

The fundamental choice is whether “Maximum Benefit” is best attained by using ER funds to supplement legislative spending for existing government programs or by creation of personal property (larger PFDs). It is not an easy choice: Use of the ER to maintain our government spending habits, besides being arguably illegitimate, merely postpones a crash! Merely increasing the PFD from the obese ER does nothing in itself to avoid a crash! Cutting spending enough to match projected revenue will likely hasten a crash! 

No matter how we look at it, a “crash” is likely pending, but of all the choices out there and there are others. Taking money out of the ER before it can become personal property (PFDs) is the very worst option. Taking ER money before it is personal property leaves Alaskans even more vulnerable to dishonest guilt trips for getting a “free ride’’ when in actuality, it is their money that is being spent to fund the most expensive state government in the US.

The ER balance is volatile because it can lose or gain billions overnight in market swings, but it is huge! Using the same projections as those who want to spend it for government, we could pay approximately $3500 per year dividend to Alaskans for the next 8 years and still have several billion left in the ER after that time. Again, simply putting ER money into the state checkbook is a very bad idea until there is a much better understanding of whose money it is.

Incidentally, it is a mistake to think the majority of legislators do not understand or disagree. We get a constant barrage of appeals from constituents and lobbyists to fund all government programs to the maximum. In spite of that pressure, you can thank the legislature for savings (budget reserves), the PFD itself, the high balance in the ER, and very hard work to cut spending.  

Now is the time to encourage your legislators to continue the cuts and to leave the ER to be the very last option to avoid bankruptcy, definitely not as proposed in SB128. Don’t be too hard on legislators who ‘tested the waters’ by voting yes to start the discussion. We have each been told countless times that most of our constituents want the ER raided now! I never believed it, but some did, likely influenced by the magnitude of the pressure to spend.