Wednesday, January 06, 2010

Hollis French And Harry Crawford Want To Constitutionally Enshrine Alaska's Individual Permanent Fund Dividend, Transform It Into Welfare Program

Alaska State Senator Hollis French (D-Anchorage) and State Representative Harry Crawford (D-Anchorage), both campaigning for higher elective offices, have proposed a singularly boneheaded move which not only could destroy the Alaska Permanent Fund as we know it, but is a crude way to bribe voters into supporting them. French and Crawford want to insert a clause in the Alaska State Constitution guaranteeing an individual Permanent Fund dividend every year. Primary media story from the Anchorage Daily News; secondary story published by the Fairbanks Daily News-Miner.

French and Crawford want to guarantee Permanent Fund dividend checks in the state constitution, saying if the dividend isn't protected, the legislature will eventually use the money to pay for state spending. They intend to introduce a resolution to be considered in the annual legislative session starting this month. Such a constitutional amendment to enshrine the dividend would need a two-thirds vote in the House and Senate and then a statewide public vote to pass. It would guarantee the annual payout as long as the investment earnings are sufficient to provide the money.

French and Crawford are so committed to the idea of "enshrining" the individual PFD that they'd be willing to impose a state income tax before drawing money from the Fund. Both have said drawing money from the dividend should be "dead last" on the list for how to balance the budget -- a list that might include a statewide sales tax or income tax if petroleum revenues should drop far below state spending. Imagine that - one would get a PFD check from the state in October, and then turn around and send a tax check back to the state in April. Money chasing money through the system.

This is not the first effort to "constitutionalize" the individual PFD. Previous efforts by Crawford, French and others to put the dividend in the constitution failed to get nearly enough support in the legislature to make it to the public vote. But French, who is running for governor in the fall election, and Crawford, who is running for Congress, said they want to provoke a statewide conversation about the dividend in the wake of the suggestion by several Republican legislators that the state should look at changing how it taxes oil.

But Rep. Mike Hawker (R-Anchorage) thinks the idea is silly. "It creates the appearance clearly of campaign tactics, much more so than a substantive look at the state's resources and the state's needs," said Hawker, who is among the legislators who want to look at changing the state's oil tax system. Hawker said putting the dividend in the constitution is against the intent of the Alaskans who voted to create the Permanent Fund in 1976, and that earnings from the fund were meant to sustain state operations once petroleum money ran out. The state has a surplus because of high oil prices and there is no serious push right now to use some profits from the $34 billion Permanent Fund for government. But Alaska oil production is declining, and the time will come to tap the Fund more vigorously. Senator Tom Wagoner (R-Kenai) agrees and said a proposal to put the dividend in the constitution wouldn't have a chance of passing the legislature in the upcoming legislative session.

What French and Crawford don't understand is that the individual PFD is a profit-sharing program designed to share oil profits annually with qualified Alaskan residents, in much the same fashion as corporations share profits with stockholders through their own dividends. But corporations don't tap into principal to to pay dividends if there is no profit; no profit, no dividend. Consequently, if the Permanent Fund does not make a profit, theoretically it should pay no individual dividend. We use five-year averaging to ensure the Fund can pay a dividend even after a lean year. Visit the Alaska Permanent Fund Corporation website to learn more about the history of the Fund.

In short, French and Crawford merely want to transform the individual PFD into just another entitlement or welfare program under the emotional premise that the dividend is "ingrained in the fabric of Alaskan life". Public reaction after the jump.

As expected, conservative pundits are outraged. One Alaska Voices columnist, Dr. Brian Sweeney, pans the proposal, reminding us that the state has a fiscal problem on the horizon. Oil revenues make up more than 90 percent of what the state collects. The money is going to dry up even if oil prices stay high because oil production is on the decline. This is coupled with a spending problem from Juneau. The state's operating budget increased 23 percent in the first year of the "conservative" Palin Administration. Two of the largest capital budgets in state history were also passed. Another Alaska Voices columnist, Kevin Clarkson, openly accuses French and Crawford of using Permanent Fund rhetoric to buy votes.

But the most extreme reaction so far is reserved for KFQD conservative shock jock Dan Fagan. In a column published in The Alaska Standard, Fagan chimps out and says it may be time to end the PFD program altogether. He's concerned that if French and Crawford get their way, "we will see a day in Alaska when the government will demand a portion of your salary in the form of an income tax so it can then give free checks to every man woman and child in the state".

Obviously, Dan Fagan's reaction is clearly excessive. The Permanent Fund remains a sound idea to help Alaska pay for government if necessary as oil production and corresponding revenues subside. But we need to remember that the individual PFD was intended merely to be a pot-sweetening profit-sharing scheme designed to promote public support for the idea. The individual PFD was intended to be a bonus - NOT an entitlement.

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