By David A. James
This month, every Alaskan who qualified for a Permanent Fund Dividend is $1606 dollars richer. Yet there’s discontent. Gov. Dunleavy wanted a larger dividend, as did his supporters. Others find it absurd that the state is giving away money in the midst of a financial crisis.
Over the summer, as the governor and the legislature faced off over the size of Alaska’s government, the Permanent Fund and the role it should play in funding Alaska’s budget was at the core of many debates. So perhaps it’s time to ask, WWJD: What Would Jay Do?
Jay, of course, is former governor Jay Hammond, the architect of both the Permanent Fund and the dividend. He left us in 2005 and can’t speak for himself, but he did leave a guidebook.
Diapering the Devil: How Alaska Helped Staunch Befouling by Mismanaged Oil Wealth was Hammond’s final project. Posthumously published in 2011, it tells how he brought the Fund into existence, why he created the dividend, and how he thought the two programs should be handled going into the future. Since it’s dividend month, this slim volume is October’s Essential Alaska Read.
Diapering the Devil reveals much about Hammond’s sometimes contradictory thinking on his own creation, but at its core lies an admission: “Without a state income, sales, or property tax, the only sustainable funding source Alaska has, currently, is the Permanent Fund,” Hammond wrote. How this would be accomplished is a bit complicated, however.
Hammond’s history of the Fund’s creation begins before statehood, something he opposed because he didn’t believe Alaska was economically capable of sustaining itself. He was on the losing side of that argument, but once the 49th State came into being, he entered politics.
Hammond’s initial concern was resource wealth leaving the state without Alaskans benefiting from it. A resident of Bristol Bay, he watched the majority of that lucrative fishery get harvested by fishermen from beyond Alaska who profited handsomely from the state’s resources without returning anything to locals. So while serving as manager of Bristol Bay Borough in the sixties, he enacted a use tax on all boats operating within the borough’s borders, recouping part of the wealth that was leaving the state. Then he sealed some of those revenues into an investment portfolio for safekeeping.
When Hammond became governor in the seventies, he applied the same approach to Alaska’s newfound oil wealth. A fiscal conservative, he knew politicians would spend every dime of it they could. So he pushed through the state constitutional amendment creating the Permanent Fund, into which a percentage of oil revenues would be placed each year. The idea of a dividend for residents was in his original plan, he wrote, but he kept it out of the debates over the Fund itself, concerned it would stand in the way of passing the amendment.
Hammond’s reasons for creating the dividend were multiple, but regarding Alaska’s current dilemma there were three primary ones. He felt residents were better suited to decide what to do with the money than politicians, he believed an equitable dividend would meet the state constitution’s mandate that “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the state, including land and waters, for the maximum benefit of its people,” and he believed that by receiving a dividend, Alaskans would have a vested interest in keeping the legislature from raiding the Permanent Fund.
Notably absent are two competing views often heard this past summer. The claim that the Fund was created to compensate Alaskans for “signing away their resource rights,” a popular talking point on the right, is nowhere to be found in this book. Neither, however, does Hammond ever claim, as many on the left do, that the primary long-term purpose of the fund is to pay for government.
So how does that square with Hammond’s statement that the fund is needed to keep Alaska afloat? Through that second most dreaded of promises in life — taxes.
During his term as governor, the legislature repealed the state income tax by a veto-proof margin. Hammond called this, “the most stupid thing we could do.” It left Alaska without a recurrent source of income and severed Alaskans from any personal connection to the cost of government. He knew that oil revenues would ultimately drop, and that without taxes there was nothing to take their place and the state would go broke. He predicted where we are today.
Hammond wanted fiscal responsibility, but not at the expense of undermining society. He would not have gutted education, public safety, road maintenance, and other necessities to balance the budget on a dwindling income. This is why he supported taxes, just not high ones.
Hammond’s proposal was to maintain full dividends while reinstating an income tax, but capping it at the amount of the dividend. Only the wealthiest Alaskans would sacrifice their full dividend. Most would keep the lion’s share, the poorest all of it. In essence, the dividend would fully subsidize every Alaskan’s tax burden, thereby fulfilling Hammond’s statement that the Fund could supply a recurrent revenue source. More importantly, seasonal workers and out-of-state employees in extractive industries would pay full taxes instead of taking all of the money they earned in Alaska out of Alaska.
Selling taxes to a state that hasn’t known them for nearly forty years is no easy task. But nonrenewable resource revenues will not save Alaska. Residents have to decide if letting the state slide into bankruptcy to avoid taxes is preferable to having state troopers, schools, roads, and a functioning economy.
Jay Hammond gave us our Permanent Fund and our dividends, but he also warned us that Alaska couldn’t run on oil money alone. We’ve listened to him tell us why we deserve a share of the wealth. Perhaps we should listen to him explain why we should be willing to return a piece of that for the common good. For this reason, Diapering the Devil is October’s Essential Alaska Read.