^ 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.