First, the realities:
Unless the State of Alaska cuts the budget for conventional public services/projects by a lot more than most Alaskans have shown than they want or raise taxes on the oil industry in an amount that they have voted against, Alaskans will be paying taxes to pay out Permanent Fund Dividends at the level desired by Gov. Dunleavy and his allies.
However unpopular this statement may be, this is how the math works. There were two true ways to avoid this outcome. One was to make sure that the State of Alaska’s oil revenues stayed so high that the State of Alaska could pay for almost all its spending with oil revenues, savings outside the Permanent Fund. That approach worked for about 35 years—from about 1980 to the mid-2010s—but it has stopped working due to declining Alaska oil production, lower world oil prices, and an oil tax system adopted in 2013 that makes our state’s oil revenues much more susceptible to drops in oil prices.
The other way to avoid having Alaskans pay taxes for higher Dividends was to create a legal structure in which individual Alaskans would have a legally enforceable right to a share of the oil wealth that could not be taken away by a change in the law. One such device would have been for the State of Alaska to establish a royalty trust in the early years of Alaska North Slope development that would give individual Alaskans individual rights to portions of the State of Alaska’s royalty share in a particular field. Creating that kind of royalty trust makes less sense now, however, given that there’s far less money to share as production from Prudhoe Bay—by far the biggest field—has fallen so much.
(Adopting a constitutional amendment to guarantee a Dividend stands on a different footing, because as a legal matter the people of Alaska could amend the Constitution again to eliminate that guarantee. That statement of the law does not consider the politics of such a second constitutional amendment, of course.)
Guaranteeing the Permanent Fund Dividend in the Alaska Constitution and adopting a tighter constitutional spending limit are very serious policy questions, and it also makes a great deal of difference what the level of guaranteed Dividend and the precise nature of that new cap would be.
Regarding the Dividend, the Comprehensive Fiscal Plan Working Group recommended that legislation generating $500-$775 million in new annual revenues and budget reductions of $25-$200 million over multiple years accompany the Governor’s proposal of a 50/50 constitutional allocation of Permanent Fund earnings between Dividends and conventional public services/projects. A new proposed constitutional amendment for a “Sustainable Dividend Account” whose prime sponsor is Sen. Tom Begich (D.-Anchorage) carries the assumption that the Legislature will enact legislation that produces at least $250 million in new annual revenues to help deliver a Dividend of at least $1,200 per year.
Now for some disclosures. Anybody who reads my work knows that I am not operating as a regular reporter while writing these dispatches from the Capitol. It’s not just that I write only about the structural deficit. I also don’t identify my sources, so I am certainly not your go-to person for juicy quotes from one-on-one interviews. And the biggest difference between me and your more conventional correspondents is that I have well-known policy preferences on fiscal fixes and frequently give advice and suggest deals to legislators.
I try to keep these multiple roles clear, and here’s one good example. Policy Analyst Cliff is aware that the evidence clearly shows that bringing back a personal income tax would leave most Alaskans better off than a statewide sales tax would, and that guy also knows that restoring the personal income tax would avoid taking revenue capacity from the more than 100 local governments who rely on local sales taxes. Political Commentator Cliff recognizes, however, that the Legislature and the Governor in 2021-2022 are more likely to produce a statewide sales tax than a personal income tax.
(Administrative note: Internet issues prevented me from posting a previous draft of this dispatch last night. I plan to write a second dispatch later today.)