The Time May Be Right To End The Alaska Permanent Fund Dividend

AlaskaThe Dividend is a Redistribution Policy

The Alaska Permanent Fund was established in 1976 as an investment that would allow for the continuation of funding of Alaska’s essential services once the Alaskan oil resources had been exhausted. While a portion of the income from the Fund comes from oil revenue (about 11% of total oil revenue to the state), most of the growth in the fund has come from re-investment and additional money put in by the legislature during the “rich” years of the inevitable boom and bust cycles experienced by Alaska. Based on its purpose, to fund the Alaska government once oil tax revenues have dried up, many people in Alaska (myself included) believe paying an annual dividend to residents is inconsistent with the Fund’s goal. In a 2010 study by the University of Alaska Institute of Social and Economic Research, Scott Goldsmith writes that if all Permanent Fund earnings had been reinvested it “would have resulted in the Fund today being about twice its $34 billion balance. The annual earnings from a fund of this size would be sufficient to pay a large share of the cost of government on a sustainable basis.” So rather than maximizing future value, the State has chosen to take profits from oil companies and redistribute them to residents. This is hardly consistent with conservative fiscal policy.

Critics believe that a portion of the income should be redistributed annually to the residents of Alaska because they fear the Alaskan legislature lacks the political will and discipline not to touch the Fund to finance current government programs. By redistributing dividends to residents, each individual gets to determine how to best spend the money while at the same time stimulating the Alaskan economy. While this is an interesting theory (and I generally support allowing individuals to spend money rather than governments), it is inconsistent with the intent of the fund. Plus, any concerns about the state government dipping into the Fund to pay for current needs can be eliminated by requiring residents to vote any time the legislature wishes to use the money. Currently the legislature can use the money whenever they want so the redistribution doesn’t reduce that risk anyway.

Instead of exclusively funding essential government services in the future, Alaska has created a giant entitlement program. And, like all entitlement programs, it becomes difficult and unpopular to discontinue. Many residents count on the Permanent Fund Dividend as part of their annual income. There’s no need to save money each month for a down payment on a new car because you can just use your dividend. State charities would also be impacted by the dividend’s elimination. In 2009 the State of Alaska developed the Pick. Click. Give program that allows residents to donate all or a portion of their dividend to local charities. In 2013, Alaskans pledged more than $2.4 million in dividends to local charities with a food bank, a program to feed the homeless, local public radio, a domestic violence group, and a dog and puppy rescue program as the largest recipients. With the influx of cash, these organizations have become dependent on the dividend donations. The competitive nature of getting donations has caused several non-profit organizations to start running ad campaigns for Fund donations adding administrative costs that eat away a portion of their increased donations. Instead of lobbying government, they are lobbying residents.

Another problem with the dividend is that for those individuals who do not wish to collect a dividend out of principle or because they don’t feel they meet one of the complicated eligibility requirements, application for and approval to participate in the Permanent Fund Dividend has become evidence of Alaska residency. If you have your primary residence in Alaska, an Alaska Driver’s License, vote here, have your bank accounts here, and get your mail here, but do a significant amount of work outside Alaska, if you don’t apply for and receive a dividend, you may find yourself in tax conundrum. By not collecting a dividend, other states have used this as evidence that an individual is not an Alaskan resident and is subject to state personal income taxes in the state they do some of their business in.

While getting rid of the Permanent Fund Dividend might be unpopular, it is the right thing to do for the long-term fiscal stability of Alaska. This is especially true now, as Alaska has reduced taxes on oil companies in an effort to reinvigorate the oil industry here. If we are going to be an example of a fiscally conservative state, saving for the future is responsible, but blatant redistribution policies are not.

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Alaska Oil Redistribution Image courtesy of Victor Habbik

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2 thoughts on “The Time May Be Right To End The Alaska Permanent Fund Dividend

  1. How can you say a dividend is against the “intent of the fund”? Governor Jay Hammond fought very hard for the dividend and was always proud of the impact it had. It is not redistribution, either. The state collects rent on its land and citizens ought to have a share in that. Tax cuts that threaten the dividend are foolhardy. The dividend stimulates parts of the state that the capitol are not likely to remember. It should be increased.

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  2. Thank you for expressing the drawbacks of the dividend program so succinctly. I do not apply for the dividend, because I believe as you do, that it is not the best use of the fund. People think I’m nuts.

    Some argue that the dividend distribution has economic advantages – but for most, the only argument they can muster up is “But, free money!” Some tell me that I’m a fool not to apply for the dividend, even when I disagree with its implementation, because “But, free money!”

    Your post is well written and well reasoned. Unfortunately, you are swimming against the tide.

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