For 45 years, Alaska has lived an enchanted fiscal life. He has collected billions in taxes from oil and gas companies, revenues he uses to shift the burden of running government to residents who, as a result, enjoy some of the lowest tax rates in America.
The Alaska Permanent Fund, first established in 1976, has earned so much from these oil and gas companies drilling on state land that it has been able to distribute a regular dividend to every man, woman and child in the country. State, a near-universal basic income program that has itself become a major engine of the state’s economy.
But oil and gas production is slowing, for both economic and political reasons. Some companies are moving away from the oil fields of Alaska and climate change threatens the islands and seaside villages of the state.
Alaska lawmakers have had to rely on a budgetary reserve fund to cover deficits in recent years.
In short, the gravy train that has allowed Alaska to store more money than any other state is slowing, inexorably, to a standstill.
Alaska’s changing financial fortunes forced a reckoning in Juneau, which pitted the state’s myriad political factions against each other – alliances far more complicated than the typical partisan divisions found in what residents call the exterior – some against others. Lawmakers and Governor Mike Dunleavy (R) are now considering the state’s first budget plan, one that will have a short-term impact on how much money each resident receives from the Permanent Dividend Fund this year and a longer-term effect on healthy exercise.
“Everyone agrees that we can’t continue what we’re doing because it’s going to cause a huge problem,” Dunleavy told The Hill in a series of interviews this week. “This is about the future of Alaska as a viable and self-sustaining industry.
The tax plan would change the state’s constitution to restructure the permanent fund, limit the amount of money available for government spending, and guarantee residents an annual dividend according to a set formula.
The proposal has moved forward in uncertain fashion this year, as lawmakers and Dunleavy clashed over the size of the annual dividend and the contours of the plan itself. Lawmakers adjourned a third special session of the year this week after agreeing to a $ 1,100 dividend, which Dunleavy said he would approve, although he favors one more than twice as large.
Dunleavy has said he will call lawmakers to a fourth special session, starting October 1, to complete work on the longer-term plan.
State Senator Tom Begich (R), the Minority Leader, said in an interview this week that lawmakers are considering four main things to put Alaska on the path to sustainable fiscal health: Changing the formula that determines the annual dividend; codify the distribution of income from permanent funds between residents, for a dividend, and the government, for annual income; capping the rate of increase in public spending; and new revenues to fill the gaps in the event of a budget deficit.
“Many of us envision the long-term inevitability of oil and gas not being a future commodity you can count on,” Begich said. “Alaska must determine how it will survive fiscally in a new world when its raw material is no longer in demand.”
The permanent fund is a sacrosanct part of the residents’ connection to the land and the natural resources that inhabit it. But today the main source of growth for the fund is not tax revenues from oil and gas companies, it is returns from a stock market that has skyrocketed in recent years. The fund’s market value is $ 81.1 billion, according to the Alaska Permanent Fund Corporation, up from $ 65 billion last year and $ 30 billion in 2009, at the height of the latest recession.
“The majority of Alaskans see it as a feature of their Alaskan life. It is an integral part of their Alaskan life at this point,” said Matt Larkin, owner of Dittman Research, the largest polling company in the world. State. these people are not government money.
But as of 2017, the dividend got bogged down in provincial politics. That year, then-Gov. Bill Walker, an independent, vetoed his size, a decision upheld by the state’s Supreme Court. Since that decision, lawmakers have debated the size of a dividend Alaskans once took for granted.
During the election campaign, candidates running to represent their constituents in Juneau almost universally promise to hand out big dividend checks. Once elected, however, these best-worked out plans tend to fall apart.
“Everyone is campaigning for the dividend, and it increases public anticipation and expectation that there will be some sort of consensus,” said Tuckerman Babcock, who served as Dunleavy’s chief of staff after leading the Alaska Republican Party for two years. “Then the statutory dividend fails in a very close vote.”
The coalitions that form around the size of the dividend and the structure of the permanent budget plan are as convoluted as the partisan politics of the state legislature, where Republicans, Democrats and Independents have lined up for and against their unexpectedly left in recent years.
The State House of Representatives has been ruled by a coalition of Democrats and Republicans in recent sessions, often in shifting alliances; Republicans joined by a few Democrats controlled legislative sessions in 2015 and 2016; Democrats controlled the House with the help of Independents and between two and eight Republicans from 2017.
Today, a Republican House speaker chairs a majority caucus that includes the entire Democratic caucus and four independents – but not until the body goes a month without being able to agree on that president.
The dividend debate is similarly, and confusingly, divided. Liberal Democrats and conservative Republicans tend to support a higher dividend – Democrats because of the benefits for those with lower incomes, Republicans because they see it as the people’s money. Moderates on both sides support lower dividends, with the remaining funds earmarked for government programs.
Dunleavy counts himself on the conservative side of that spectrum, an ally of what he calls “burnt-barrel Republicans” who are lower on the economic ladder and want the government to step out of their lives, rather than more Republicans. established who could be members of the Chamber of Commerce. He wants the budget plan to include what he calls a 50-50 plan, in which half of the annual income from permanent fund income goes to a dividend and the other half to government spending.
“We need to limit the government’s ability to take unlimited amounts of money, and we want to do that by coming up with a 50-50 concept that would be constitutionalized,” he told The Hill. “The less they get their hands on it, it slows down the size of government growth.”
As Alaska braces for a future in which its holy grail of the layoff tax begins to run out, Dunleavy may find new allies in the legislature.
“The future is changing,” Begich said. “If we can maximize the permanent fund, ensure a minimum income and a modest spending limit while ensuring that Alaskans have that connection to the fund, then we are there.”