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Jay Hammond’s curse

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From somewhere in the hereafter, the late Alaska Gov. Jay Hammond must be watching with interest the spectacle of the moment in the state’s capital.

Never could the old Bush Rat have imagined what a fine job he would do in making state lawmakers think twice, and then think again, about any effort to use the permanent fund.

“It is important to note that, under the terms of the (Constitutional) amendment, while the principal of the Fund is permanently stashed away, the disposition of the income is completely up to the discretion of the Legislature,'” the late Elmer Rasmussen, the first chairman of the Alaska Permanent Fund Corporation wrote back in 1993.

“In truth the Permanent Fund began, chiefly, with a negative goal, to place a part of the one-time oil wealth beyond the reach of day-to-day government spending.”

In fact what the Fund eventually appears to have done is permanently stash the principal and relegate the income – or the earnings as we now call it – to the clutching, grabbing fingers of average Alaskans.

What Alaska is seeing today in the gridlock in Juneau is Fund principle AND earnings put well beyond the reach of day-to-day government spending, not because of the way the fund was set up but because of that dividend idea of which Hammond was a huge proponent.

He started off wanting to make the program a longevity bonus for those who put  down roots in a state famous for short timers. The north country is cold and dark for six months of the year or more, and Hammond wanted to reward the hardy who tough out the winters by awarding them $50 for every year they stayed.

If only. I’d be getting a check for over $2,100 this year, and most of the people reading this would likely be getting diddly.

The longevity payments were unfortunately judged unconstitutional, and we got the system we have today that gives everyone whose managed to survive a year, meaning you did at least one winter, an equal cut of that year’s earnings of the fund. That’s a little over-simplified. There are some inflation-proofing costs and management costs and what not that come out of the pool first, but the summary is close enough for journalism, especially the journalism of today.

The permanent fund dividends (PFDs) first issued in 1984 have since become an Alaska right. The PFD is no longer a gift from government. Alaskans have come to expect PFDs the way food-conditioned bears expect a meal on garbage day.

That Permanent Fund “income…completely up to the discretion of the Legislature” that Rasmussen talked about?

Technically the statement remains true. Realistically it’s a different matter, at least for anyone hoping to win re-election to the Legislature.

The politicians are at the whim of Alaskans. And Alaskans – big ones, small ones; short ones, tall ones; young, ones, old ones – now get fat dividends. The payout last year was a record $2,072, which comes out to close to $5,500 for the average Alaska household now reported to average 2.65 people.

My money

The thinking of many any Alaskan now seems to be the state “can have my money when they pry it out of my cold, dead fingers.”

Despite this public sentiment and with state government facing a budget shortfall of $3.5 to $4 billion this year, the Alaska Senate, after much debate and with more than a little trepidation, passed a bill that would cap the dividend at $1,000 and tap the Permanent Fund earnings to help cover the state’s deficit.

Sen. Lesil McGuire, R-Anchorage, was the bill’s  prime sponsor and its chief advocate. She is retiring from the Legislature this year, which means she doesn’t have to run for re-election. The decision on what to do was a lot easier for her than for lawmakers hoping to win re-election.

A voter-fearful state House refused to follow the lead of the Senate. Alaska Gov. Bill Walker called them back into special session to try to browbeat them into going along. That didn’t work.

So he’s called them back again for a second special session. It might be even more unlikely to work this time. What member of the House – having stood firm against the state’s ruling elite, which backs the Senate plan – wants to now be seen as giving in to the ruling elite?

This is especially a problem in Republican districts where voters don’t think the Legislature has done nearly enough to cut state spending, and where some Republicans might find themselves already vulnerable in primaries if they go along with the Senate plan.

As for Democrats, there is the legacy of Fran Ulmer, a one-time aide to Hammond, the House Minority Leader in the early 1990s, the Lieutenant Governor from 1994 to 2002, and the politician who while running for governor in ’02 declared no one was touching the Permanent Fund “without a vote of the people.”

She campaigned heavily on that theme.

And though it’s questionable how many Alaskans who were in the state in 2002 are still here, the idea that the Permanent Fund shouldn’t be touched “without a vote of the pee-pole,” as Ulmer pronounced the word in her 2002 television commercials, still resonates.

This is the barrier the governor, Senate backers of using the permanent fund earnings, and advocates for the Senate’s Fund plan will face yet again when the Legislature reconvenes in Juneau on July 11 for the second special session.

When the fund was created, Hammond acknowledged he wanted to make it hard for state lawmakers to get their hands on the state’s royalty oil money. He could never have guessed he’d be this successful.

Whether he would be happy or disappointed at how things have turned out is a subject that can be debated endlessly. Hammond was a liberal Republican, and not exactly a fiscally conservative one.

“Governor Hammond leaves a bureaucracy that has grown along with oil revenue,” the New York Times reported in 1982. “The state operating budget alone rose in his tenure by 18.4 percent annually.”

Forced to chose between balancing the budget by tapping the Fund or making draconian cuts in state government and imposing high new taxes, there is good reason to believe Hammond might well have opted for the former. Unfortunately, he’s not around to offer guidance anymore.

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5 replies »

  1. In 1984 the state budget was 2.6 billion dollars a year….by 2006 this figure rose to 7 billion dollars annually….

    Jay Hammond believed the PFD was a “conservative” measure that would help keep government spending in check….that I will say does not seem to be what has happened in Alaska.

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  2. Why did we need a chairman for the fund in 1993 if it was working fine since 1984?

    The Alaskans that you speak of with “greedy hands”- own corporations based out of Anchorage & wish to use PF to continue unchecked government spending in their direction….the overwhelming majority of residents are NOT greedy.

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  3. Yes indeed … things are going to get interesting. A bloated state government raised on 35 years of easy oil money shows no sign of wanting to radically downsize. Income tax on the small population of 736,000 (and declining) Alaskans, where only 100K to 150K would pay a significant amount … will not add up to diddly. Touching the PFD or oil credits is political suicide. A sales tax has the Dems screaming bloody murder. Fishing, mining, tourism and pot revenues to the state will just pay for collection of revenues (a wash). My guess, the entitlement mentality of Alaskans will result in the constitution being amended so the Permanent Fund can be spent. And the Alaskan economic train wreck will slowy unfold for 10-15 years until the Permanent Fund is spent to oblivion.

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  4. Or curse Jay Hammond for ANILCA. For many reasons, one of which was blocking responsible resource development. If the state could develop its resources the state would not be in this financial mess.

    I hope donations are pouring in for you Craig after AOC posted your article in the last AOC newsletter.

    Keep up the good old school investigative journalism…..

    Sent from Rod Arno’s iPhone.

    >

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  5. Quick clarification: Original dividend plan was $50 per year of residency up to a max of 30 years making a max payment of $1,500. Ron Zobel’s lawsuit took care of that as the SCOTUS found in his favor by a 9-0 vote.

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