Oil is the economic lifeblood of Alaska. Generations of Alaskans have received money from the state’s oil industry. But some folks think Alaska should cut back on the checks and start funding the state government.
Alaska’s first commercial oil well began production in 1902—long before statehood in 1959. The land known for ice floes and gold rushes turned out to be oil country too. In 1968, a discovery at Prudhoe Bay put Alaska on the world oil map. The next year, the state leased its oil and gas fields for $900 million.
“Suddenly, we were a place that the bankers looked on with envy,” says Eric Wohlforth, a state revenue commissioner.
In 1976, lawmakers established the Alaska Permanent Fund. According to an amendment to the Alaska Constitution, at least 25% of the state’s oil money must go into the Fund as an investment for all current and future Alaskans. After taking out taxes and operating expenses, the money gets divided among Alaska’s residents. Everyone who has lived in Alaska for the entire previous year (with some exceptions) gets a check, called a dividend.
Not surprisingly, Alaskans favor the Fund. Strong public support guarantees that most of Alaska’s politicians support the Fund too.
Today, Alaska has a budget dilemma. For decades, lawmakers binged on infrastructure (roads, bridges, utilities) and project spending when oil prices were high. They cut spending and closed facilities when they weren’t. But oil prices are low—and they aren’t bouncing back. So after years of dipping into savings and cutting expenses, state leaders face tough decisions.
The Fund’s principal (original sum of money) is protected. It can’t be spent, but its earnings can. After that, the Fund’s rules get fuzzy. Some say they believe the Fund’s designers intended to help finance the state government with the earnings. Others think all money above the principal should be divvied up among residents.
Governor Mike Dunleavy says Alaskans could receive checks of about $3,000 this year. Lawmakers want him to cut that to roughly $1,600. Politicians and residents may have to choose between the size of their dividends and the public services many expect—or Alaska’s residents could pay taxes. The entire population of about 735,000 pays no state sales or personal income taxes.
Something’s gotta give. Will the answer be taxes, budget cuts, dividend reductions—or deeper cuts to programs and projects?
Former deputy revenue commissioner Larry Persily calls the choices painful. “We’ve lived two generations without taxes, two generations with free money, and two generations of candidates who won if they could wrap themselves in the biggest dividend flag,” he says. “We did this to ourselves.”
Take care, and be on your guard against all covetousness, for one’s life does not consist in the abundance of his possessions. — Luke 12:15