Commentary

PFD = Pretty Foolish Decision

^ Adam Legg meme via Twitter (@adamlegg)

 

When will it be OK to call the Alaska Permanent Fund Dividend what it has become? A wonderful social experiment that failed.

Over the last 33 years, the state has dished out more than $23 billion to people living here. How many of them have stayed in Alaska? How many actually did something useful with the money given them?

OK, the best among them gifted something less than $15 million, a tiny fraction of that $23 billion, to charities and non-profits. And a handful put the money into savings to help pay for the college educations of their children.  The rest of us?

By and large, we blew those dividends. They were free money, and like all free money they lacked the value added by work. Few thought for a minute, “Geez, I’d love a 60-inch flat panel TV but is it worth $1,000 of my hard earned cash? Can I get by a with a cheaper 40-inch?”

Personally, I’ve collected almost $40,000, and I don’t have a clue as to where it went other than that there was a time before airfares roses and baggage limits were imposed by airlines that the dividend paid for an annual Kodiak Island deer hunt.

Once that ended, who knows? I spent the money God knows where, just like most Alaskans. It was money from heaven.

Why would anyone bother to keep track of it? It was meant to be spent. It was our “share” of Alaska’s oil wealth for doing nothing. And it taught a whole generation only one thing: You can live fat on the wealth of the oil industry!

Gov. Sarah Palin only added to the craziness with ACES — Alaska’s Clear and Equitable Share — which sought to tax the oil industry into submission and fill the pockets of state government with even more free money. At some point, the oil business in this state transitioned from a valuable, state economic asset into the enemy.

Was it the day the Exxon Valdez tanker hit the rocks in Prince William Sound? It would be nice to believe that, or maybe think Alaskans wanted to drive the oil industry out to help in the struggle against global warming. But the reality seems simpler: Alaskans got greedy.

THE ANGRY MOOSE AT THE DOOR

Over the years, Alaskans have acted perfectly the part of the moose fed handouts. First the animal happily takes what it is given, and then it starts demanding more. And if it doesn’t get more, it starts stomping and making a fuss.

Alaskans collectively became big, fat, overstuffed moose always demanding more. And legislators — Republican, Democrat or other — were all too happy to oblige by steadily growing state spending.

Well those days are over. Oil went under $30 a barrel the other day, and we are all in a serious predicament whether you want to believe it not.

BP, a major economic engine in this state, announced it is laying off 13 percent of its work force. ConocoPhillips, another big player in the oil patch, had previously made big cuts. And the state itself is looking at a $3.5 billion budget deficit that is growing daily alongside oil prices that just keep falling.

Gov. Bill Walker has offered a plan to tap the earnings of the permanent fund, impose an income and other taxes, continue the PFD as something of a tax rebate for the working folk and a handout for the poor, and maybe, possibly, reduce spending on state government by $100 million. There are some who’ve looked at his budget carefully and come to the conclusion that it actually increases state spending.

Meanwhile, the legislature seems unable to get its stuff together to offer any sort of plan, though a majority of legislators appear to believe the budget needs some serious cutting (not just the Walker sham) and a super-majority, which would be needed to open the vault of the permanent fund, seems ready to tap fund earnings — if, and here is where it gets sticky, if the majority doesn’t cut the budget by much.

All of which looks makes it look like the budgetary process could be headed into another
stalemate that results in legislators spending months arguing without doing anything.

How the hell did we get here?

Well let’s go back to the beginning to consider what the permanent fund didn’t do. It didn’t get enough money out of the hands of lawmakers, be they Democrat, Republican or Libertarian. Yes, this state once has had some Libertarian lawmakers; they joined the spending binge, too.

IF THEY HAVE IT, THEY WILL SPEND IT

Hamstringing government spending was one of two original intents of the permanent fund. The other was to save money for the future when the oil runs out, and it will run out.

Alaskans did best in the savings department. The permanent fund is now sitting on almost $50 billion. Give lawmakers past and present a little credit for that.

The other goal, stopping the almost inevitable growth of government? Well, all those politicians who like to trot out their conservative credentials didn’t do too well when it actually came to acting conservatively.

Alaskans today spend more than $15,000 per person on state government. Maybe that doesn’t sound like much to you. But think about it.

The cost of government to the average family of four in this state is more than $60,000.
Has your family got the money to pay a $60,000 per year income tax to keep this cruise ship afloat?

Mine certainly doesn’t. And it’s pretty clear that in states where people pay taxes instead of feasting on the golden eggs of the energy industry, nobody pays this much money. Alaskans spend five times as much on government as Nevadans, who also call themselves conservative and seem to have a stronger claim to that title than Alaskans.

Alaskans spend spend almost twice as much on government as people in Massachusetts. Yes, Massachusetts, the state considered the most liberal in the nation. Massachusetts spends a little more than the national average. Alaska spends more than twice the national average.

This is the harsh reality.

IT’S NOT ABOUT BOONDOGGLES

Our financial problem is not about past boondoggles, either. Yes, those wasted money, but that money was there and gone. We weren’t committed to spending money year after year after year. I am so tired of hearing Alaska’s financial problems being blamed on boondoggles that I could scream.

We should be so lucky as to have this as the problem. You can walk away from a boondoggle and be done with it.

Ask BP about this, or Shell. BP spent nearly a billion dollars on the Liberty oil rig, which was set to drill the longest directionally drilled well in history. Then the company decided the drill project was too risky, cut its losses and walked away.  Shell, as Alaskans know too well, abandoned the North’s next great oil hope in the Chukchi sea last year after spending more than $7 billion on oil exploration.

The company found oil. It just didn’t find enough oil, not enough to match the high risk and development costs inherent in pioneering offshore Arctic production. So, Shell made the same decision as BP: cut the losses and walk away.

The state of Alaska, though some may have forgotten or never learned, once did the same. It tried to start a global barley project in Delta, but eventually cuts its losses and walked away. Same for the Point MacKenzie Dairy Project and the Valdez Grain Terminal and the first incarnation of the Susitna Hydro Project.

Shut ’em down and walk away. You can do that with boondoggles. You can’t do it with state government. Some of its agencies provide vital services, and all of its departments provide stable employment. Treat state government the way you’d treat a boondoggle, and the already struggling economy just takes a bigger hit. But that doesn’t mean the state shouldn’t try to cut costs and aim for eventual sustainability.

At last count, the state was funding something like five separate health insurance plans, plus paying some or all of the cost of different health plans for almost every school district in the state. The state could combine these all into one big health plan (though public employee unions would certainly object) and then negotiate for a group rate with Anchorage’s major hospitals.

I’m no bean counter, but it’s pretty clear the savings in this alone could be in the tens of millions. And this is just one savings. I’m sure if some real bean counters went through
the state budget page by page, line by line they could find a lot more — a million here, $10 million there, another million back in the corner. They might even find a few people doing little who could be let go, or decide that state employees could help in this crisis by taking a day of unpaid leave every month or two and letting government keep that money.

IT’S ALL ABOUT SUSTAINABILITY

The state needs to start doing this, and it needs to start doing it now. Nobody is going to get the state budget down to an Alaskan sustainable level versus the old, oil-sustainable level overnight. But we need to start working toward that end.

And we need to kill the PFD, which hasn’t made any of us better. It has just made us entitled. We are entitlement state leaches, who collectively sucked $1.3 billion out of state coffers this year alone.

Sure, there are those advising the governor (one of them used to be a valued friend of mine) to continue the PFD as a handout for the poor, especially the poor of rural Alaska. It’s a nice thought, but I’ve never met anyone who benefited from handouts. All handouts do is making people more dependent on handouts, and eventually the handouts destroy them.

Handouts are corrosive. If handouts worked, Anchorage’s homeless would be living large.

They’re not. They don’t save the handouts and put them toward a plan to make their lives better. They spend the handouts as if hey were PFDs. This is the way it works with handouts.

If we want to use permanent fund money to help people in rural Alaska, put some of the money into a program to set up something similar to President Franklin Roosevelt’s Work Project Administration (WPA) and pay people wages to start building trails between villages.

A good network of trails would save people from dying by going through sketchy ice while traveling by snowmachine; a good network of trails would save the costs of looking for the bodies of these people; a good network of trails could make it possible to consolidate
rural schools that could both save the state money and improve rural education.

Why a good network of trails might even give Alaska’s long-dreamed-of “winter tourism” a kick start, and winter tourism is probably one of the few business developments everyone in the entitled, NIMBY state of Alaska could get behind. Yes, NIMBYism is another of our problems.

 “ALASKA IS THEIR OWN WORST ENEMY”

Not to bad mouth fellow Alaskans, but Exxon CEO Rex Tillerson, the devil himself, was onto something when he said, “Alaska is their own worst enemy.” Oil wealth made Alaskans fat and happy. It encouraged them to reject developments likely to demand tradeoffs or even just a change in the status status quo.

And oil wealth encouraged Alaskans to grow government not just to meet vital needs but to meet as many needs as possible and more than a few mere wants. We’re stuck with some of that now for at least a while. You can’t make major reductions in the size of government overnight. So we have to patch things together as best we can as we work toward sustainability.

As GCI chairman Ron Duncan rightly argues, we also need to use the earnings of the
permanent fund to cover what is going to be a sizable fiscal gap for years, because it’s economically foolish to slash too much too soon. We can’t cut our way to sustainability tomorrow.

Reducing the size of government is a marathon not a sprint. It has to be done at a reasonable pace until we get to a sustainable level.

What is a sustainable level?

Well, that’s something the governor and the legislature should be asked to define. Should it be simply what the permanent fund earnings can support? Or maybe one and half times the national average for per capita spending, more or less? It is, everyone must concede, more costly  to live here in the north. It’s those “shipping costs.”

Alaskans can’t ignore that reality anymore than they can afford to ignore the state’s budgetary crisis. Some of us lived through the oil crash of the 1980s. It was ugly. Businesses closed all across the state. People walked away from their homes. And in 1989 when the Exxon Valdez tanker hit the rocks, all too many of us muttered under their breathes “thank God for an oil spill.”

Exxon, Tillerson’s oil company, that time bailed us out in an ugly manner with billions of dollars in oil clean-up money, and then world oil prices surged, and we were in fat city again for a couple decades. That’s over. It’s history.

Even if oil prices come back tomorrow, the state’s ever-declining oil production will leave
us in a tough spot. Everything is different this time. And don’t let any of the newly legal stoners in the media, puffin’ on the good stuff and telling the world that we need the PFD because it somehow makes us all equal, convince you otherwise. Most of them can’t add well enough to balance their own checkbooks, let alone the state’s.

Anyone who can add and subtract can look at state revenues and expenditures and recognize Alaska has a problem — a serious, serious problem. I admit I am nervous bordering on afraid. My daughter, who loves Alaska, but is much better at math than me, is already making plans to leave.

ALASKA’S PROBLEM IN HOMEOWNER TERMS

To translate this all to a personal level, you can look at it this way: You’re living in a million dollar mansion. You just lost your six-figure executive job with Google and picked up work flipping burgers at McDonald’s. And the mortgage, electric, phone and heating bills are all coming due.

You’ve got some savings, but not nearly enough. So you better make some changes, and make some changes soon, or things are only going to go from bad to worse.

That’s where the state of Alaska is at, sad to say. And as the collective that is Alaska, that’s where we are at.

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Categories: Commentary, Politics

10 replies »

  1. I use all mine for schooling. Personally, I feel that all the military people that come up for duty and claim Alaska residency for two years and then keep it the whole time they are serving is crap. Most of them then never move back after their military career. I think the only military that should be eligible for PFD’s are those that joined the military while they were an Alaskan resident.

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  2. Funny how Ol’ Alice came to Alaska so she could buy Native Artifacts, with her husband’s millions, and managed to piss off so many people, not quite as many as you have Craig, but then we know you….We need to go look to our sustainable/renewable resources once again….I really like the idea about taxing those Limited Entry Permits, way too many of them are held by Outsiders as it is….Limited Entry is what made me leave SE, had enough points for a permit, but my birthday is in October, and not May, so I was too young by a few months….

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  3. While this is an interesting narrative, it is written from the experience of an urbanite. Certainly the author attempted to cover all bases, but he is clearly showing his bias for sustaining government at all costs and if that means to demean and diminish the money which flows into the private sector, for whatever reason, we’ll then so be it. In the household if this author, it is clear he did not need the PFD over the years, but for him to casually brush others aside is monocular thinking. He brings passing credibility to the PF stating that we now have $50 billion in a savings account. If we were to follow his “sage wisdom” 40 years ago, we would have no savings account, more boondoggles and a government the size of Godzilla. Beware of false financial gurus in times of dispair. This author is nothing more than a cheerleader for the largess of government. Don’t eat the cheese.

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    • Michael: I think you need to go back and reread. I’m definitely not a guy in favor of “sustaining government at all costs.” As the article notes, one of the ideas behind the PF was to take sudden oil wealth out of the hands of government so it would be harder to grow government. A true believer in flowing money to the private sector, of course, would argue that we should have treated oil like minerals were traditionally treated in America, and nearly of the wealth related to their recovery should have flown to the private sector instead of government. Alaska didn’t do that because of the late Wally Hickel’s idea of the “ownership state,” which others governors — including some like Jay Hammond who didn’t much like Wally — embraced. In praising the $50 billion savings account, you appear to be among the believers in the ownership state even though you want money to flow to the private sector. I’m all for the private sector. The best thing you can give a human is a job, and the private sector is the big job provider. But the problem of the moment is that there are government services everyone, even the most Libertarian of Libertarians, would agree are vital, and we need to figure out some way to pay for those services when our source of tax revenue has seriously shrunk. So if we don’t spend the earnings of the PF, what would you suggest we do to pay the bills? Or are you just one of those people way out there on the fringe thinking we should do away with all government?

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      • Craig, I am a libertarian not an anarchist. It is an absolute fact that the size and scope of Alaska State government is beyond any reasonable ability to maintain. We double ANY other state in per-capita expenditures. The vast majority of these expenditures have no method of measured accountability. Government needs to do what it’s essential services call it to do and leave the rest to the private sector. Alaska has 3,200 active Non profit organizations which are in direct conflict with our constitution. We also have 120 boards and commissions. The state payroll tells us we have 21,400 state workers but we fund 26,000! Where does the rest of the money go? We have spent $73 million on an Alaska Aerospace program for what?

        Now whether we like it or not, the Alaska Constitution is the most socialist doctrine of any state in the country. This is the root cause of the “owner state” you eloquently wax about. Until this is attended to, we are attempting to manage between the sideboards. The PFD is simply our royalty payment for being “partial owners” of our land.

        Ultimately, it comes down to a gross mismanagement of 75% of the entire mineral resource of the state, by the state, and now they want the citizens to suffer for their bad fiscal management with hairbrained schemes like sin taxes, gas taxes, school head taxes, capping the PFD, incorporating income taxes and sales taxes, and any other form of draconian measures they can conceive to advance the propaganda that we have “skin in the game.”

        I want a government which promotes self reliance and self sufficiency, not a government which develops the citizens into dependents of the state. It is not the libertarian in me, rather it is the American in me.

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  4. We have lived in Alaska for almost 44 years, before the PFD was ever started. My husband and myself, and a lot of people in our age group, think it should have been stopped years ago!

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  5. We use the PFD to pay down credit card debt–npo vacations, no fancy toys, no eating out, no new clothing, no new anything–we get most of our stuff from thrift shops and dumpsters.

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  6. pretty spot on

    On Wed, Jan 20, 2016 at 9:09 AM, craig medred wrote:

    > craigmedred posted: “^ Adam Legg meme via Twitter (@adamlegg) When will > it be OK to call the Alaska Permanent Fund Dividend what it has become? A > wonderful social experiment that failed. Over the last 33 years, the state > has dished out more than $23 billion to people” >

    Like

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