Stateline Story

Alaska's Treasure Chest Becomes Debate Topic

  • January 22, 2001
  • By Ivan Sciupac
Death and taxes - plus an annual check from the state. These are the guarantees in life shared by more than 596,000 Alaskans.

Thanks to the creation of the country's most unique public program 24 years ago - perhaps the state's most far-sighted move ever - every man, woman and child who has lived in Alaska for at least one year is guaranteed a yearly dividend representing their return on royalties from a public resource - oil.

The Alaska Permanent Fund, which pays the dividends, was created in February, 1977 to reap long-term rewards from the sale of state oil deposits. Knowing that construction of the trans-Alaska oil pipeline would bring huge revenues to the state, voters one year earlier had approved a constitutional amendment stipulating that at least 25 percent of the revenues be set aside in a public savings account. The dedicated oil revenue has been augmented with money provided by the legislature to "inflation-proof" the fund. Since its inception, the fund has grown from an initial deposit of $734,000 to than $27.1 billion as of Jan. 18, 2001.

The fund's dividend program started six years after the first deposit was made. Payouts have risen from $331.29 a person in 1984 to $1,963.86 last year. Every October, the state mails a check to every eligible resident, an occurrence that prompts local stores and other businesses to hold "dividend specials." Last year, $1.172 billion in dividends were paid out to 596,784 eligible Alaskans.

However, Alaska's oil revenues have begun to shrink and the state is facing fiscal problems. So there is now a debate about tapping the fund to close Alaska's projected budget gap. According to Rob Carpenter, a fiscal analyst in Alaska's legislative finance division, bookkeepers expect the state to end fiscal year 2001 in the red by about $120 million. That figure, Carpenter said, is based on a formula that sets Alaska's average price per barrel of oil at about $30. But with the price per barrel at $25.35 as of Jan. 18 (the price is updated daily on Alaska's official Web site), the deficit could be worse.

"There's two opinions on (tapping the fund to help the state pay its way)" said Scott Goldsmith, an economics professor at the University of Alaska Anchorage. "Some would say it's the people's fund ... They say, 'That money is mine, that dividend is mine.' The other way of thinking is it's a fund that's owned communally ... a fund for all generations." Under Alaska's constitution, a majority of the voters must approve any use of the fund's principal. There are no legal hurdles, however, preventing legislators from tapping into the income and spending it on state services and programs.

In his State of the State Address Jan. 10, Gov. Tony Knowles proposed modest tax increases, spending cuts and using a portion of permanent fund earnings to keep the budget balanced. "I believe most Alaskans are willing to accept measures necessary to keep our level of public services healthy if they're fair," Knowles said. Alaska has no state income tax or sales tax.

But Alaskans are fiercely protective of the dividends they receive from the fund, and a "leave it alone" mentality is prevalent, creating a major political problem for Knowles. In a non-binding, advisory election two years ago, 83 percent of Alaskans voted "no" on a proposal authorizing the Alaska Legislature to tap into fund earnings to help balance the budget. A controversial 30-second ad aired before the election portrayed lawmakers who favored the plan as swashbuckling pirates bent on raiding the fund.

"It's kind of a tough situation," fiscal analyst Rob Carpenter says."Investment earnings [from the Fund] are exceeding oil revenues, yet the Permanent Fund is not available for spending. It's like saying I don't have the money to balance my checkbook when I have money sitting in my savings."