On May 15th, 2008, Alaska Governor Sarah Palin announced her plan to use the state's huge budget surplus to help make energy more affordable to Alaskans. The program would last one year and cost approximately $1.2 billion. Full story published in the Anchorage Daily News; other reports from the Fairbanks Daily News-Miner, the Juneau Empire, and KTUU Channel 2.
Click HERE to review the Governor's six-page press release in PDF format.
Palin's program would help Alaskans in two ways. First, it will allocate $475 million in grants to electric utilities, which the governor expects would result in a 60 percent reduction for all ratepayers.
But the second, and more controversial component, is the allocation of $729 million for "Energy Debit Cards." Every Alaska man, woman and child eligible for a 2008 Permanent Fund dividend could get a card. The benefit on the card would be $100 month and it could be used only for energy purchases. The cards would have "merchant codes" so they could be used only for energy purchases at gas stations, fuel distributorships, utilities and the like. The $100-a-month for children could be added onto the balance of their parents' cards. Any Alaskan who activates a card would have to pay the federal income taxes on it, but unused balances on the card would roll over from one month to the next. One source reports that activating the card would trigger a Form 1099 to be sent to the user for tax records.
The program is slated to last only for a year; consequently, the cumulative value of the debit cards would be approximately $1,200 (the Juneau Empire reports precisely $1,222). Nevertheless, Governor Palin insists the state can afford it; thanks to the high oil prices, the state is expected to realize at least $2.7 billion more in revenue this year than originally projected, and this could go higher.
Palin would like to begin the program in September 2008, a month before the first round of PFD checks are sent out and before winter kicks in. She wants the state legislature to approve the plan this summer to meet this deadline. One special session, to deal with the natural gas pipeline, is scheduled to begin June 3rd, and Palin might request her energy assistance plan also be placed on the agenda.
Palin said it makes sense to return some of the state surplus to the suffering public. "It's really atrocious, the situation that Alaskans are in today, where we, as the owners of the energy resources, are paying outrageous prices for use of those resource", Palin said.
But not all state lawmakers were celebrating. While the hard-line conservative Rep. Nancy Dahlstrom (R-Eagle River) lauded the plan, other more moderate Republicans were a bit more skeptical, and one Democrat, Harry Crawford (D-East Anchorage), "choked" on the price tag. Most legislative opposition coalesced around the debit card provision. House Speaker John Harris (R-Valdez) is particularly concerned about the possibility of debit card fraud.
And the conservative Anchorage Voice of the Times came out in opposition, labeling the plan a "monstrosity". Here's their criticism, in part:
Apparently, Palin forgot to ask the two crucial questions about any government meddling: Is it the government’s job; do we want to pay for it? In this case, the answer is no to both. Yes, energy costs are rising. Yes, the market is starting to correct the problem by spurring conservation. And, yes, handing out “free” money will undercut any gains by making energy more affordable and encouraging its use.
Worse, the program — ripe with potential problems such as black market sales of the cards — would evolve into an expected, and eventually demanded, benefit that would not die until the state is stone broke. Can you imagine any politician who would suggest cutting off cash to Alaskans after they have been given it for awhile?
VOT also cites the howls of disapproval which arose when Frank Murkowski cut off the Longevity Bonus as an example of how difficult it is to convince people to give up an entitlement once it has been established.
Nevertheless, there is powerful economic justification in support of Palin's program. Initial public opinion is strongly supportive; a KTUU "unscientific" poll taken May 15th indicates that 73 percent of respondents supported it, 19 percent opposed it, and 9 percent unsure. This is because energy prices are sharply higher statewide, but the increases are almost doubled outside the Anchorage Metro Area. Price increases in Anchorage have been slow but steady.
But once you get outside the Anchorage Metro Area, increases are sharper. According to the Alaska Politics blog, the Fairbanks North Star Borough recently reported that while in 2006, the average Fairbanks household spent about $2,800 on energy bills, in 2007, the same household spent twice as much -- about $5,700. Borough Mayor Jim Whitaker said that rising energy costs could be as big or a bigger drain on the Fairbanks economy than losing Eielson Air Force Base would have been a few years ago. And Fairbanks Assemblyman Tim Beck said he paid $146 to fill up his 2004 Ford diesel truck yesterday. Nearly one-third of his monthly electric bill pays for a fuel surcharge, he said. Beck also said he'd just read how Flint Hills might sell its North Pole refinery.
Another article in the Anchorage Daily News focuses on energy costs in Bush Alaska, off the state's road network. Gas prices are already pushing $6 to $7 per gallon, and the new shipments of fuel due in by barge once the ice completely breaks up will exceed $8 per gallon. Heating oil and stove oil is already nearing $6 per gallon. The Tanana School District, which spent $60,000 on fuel costs in 2006-7, has already spent $100,000 this school year. These are hyperinflationary increases, folks, nearly 100 percent. This is characteristic of Third World countries; it's not supposed to happen in America.
And let's not forget about unplanned anomalies. Juneau's fuel costs were high enough as it as. Then came an avalanche, which took out a number of electrical transmission lines. Juneau immediately switched to backup diesel generators, which boosted consumers' electric bills three to five times higher than normal. More background on this in an April 23rd story published in the Sitka News.
Commentary: I strongly support the proposal to provide $475 million in grants to the utilities to lower consumer costs. This guarantees it cannot be spent on anything else.
However, the same cannot be said for the debit card program. I envision some low-income people selling or trading their debit cards for alcohol or drugs. Or what happens if the cards are stolen? The Palin Administration has yet to explain how this can be prevented. Secondly, cutting a bunch of debit cards and sending them out seems like an expenditure of needless effort. I urge lawmakers to reject this part of the plan.
If the Palin Administration genuinely believes the debit card relief is necessary, a more efficient way to accomplish it would be to dump the allocated funds into the Permanent Fund and use them to award a one-time extra increase in the Permanent Fund dividend for each person. Assuming the normal PFD for 2008 will be $2,000, this could add an additional $1,000 to each PFD check. This would provide the same assistance without the extra bureaucracy.