Alaska’s Budget Deficit is Political Threat to its Basic Income

Alaska’s Permanent Fund Dividend is the closest thing to a Basic Income that exists in the world today. It gives every U.S. Citizen who fills out a form verifying Alaska residency a check for a share of the revenue from the Alaska Permanent Fund each year. The fund and dividend—on their own—are on solid financial footing. Left alone, they can continue as long as there is a State of Alaska. But the same can’t be said for the rest of Alaska’s budget. Most of it is financed by revenue from the state’s oil exports. Oil reserves are finite, and therefore, the revenue they provide temporary; and oil exports have been gradually dropping for years. The world oil market is volatile, and prices are down right now leaving the state with a substantial budget deficit, in the order of $3.9-4.0 billion this year and yet.

The state has no income or sales tax, making those the obvious sources of revenue for, but Alaskans are notoriously skeptical of personal taxes. The state has budget reserves (also funded out of oil revenue), but at current deficit rates, it could spend through those in a matter of three to five years. If oil prices don’t bounce back or if oil exports continue to decline, this strategy would merely put off the day of reckoning and put the state in a worse financial position when that day comes.

With all this issues, Alaska’s $54 billion Permanent Fund is a tempting target for legislators. The constitution projects the fund’s principal, but not it’s earnings. Almost all of the fund’s earnings have been dedicated to supporting the dividend since the dividend’s inception in 1982. The dividend has been protected by its enormous popularity, but with greater financial pressure on the state budget the political balance might change and the dividend—or its future growth—could be at risk.

Several proposals have been put forward, some involving the introduction of new taxes, some involving borrowing against the state’s funds, some involving slowing the growth of the fund and dividend, and some involve lower dividends at present without necessarily slowing the rate of increase of the fund.

To read some of these proposals, go to:

Scott Goldsmith. “Alaskans, we better wise up before we burn through our savings.” Alaska Dispatch News, April 9, 2015.

Alex DeMarban, “Permanent Fund can lower deficit while checks keep coming, economist says.Alaska Dispatch News, April 23, 2015.

Alice Rogoff, “Alaska need not suffer; let’s leverage our wealth to thrive.” Alaska Dispatch News, April 11, 2015

Fairbanks Daily News-Miner, “Editorial: Time to talk new revenue: Legislature’s focus on cuts has avoided other half of funding equation.” Fairbanks Daily News-Miner, Sunday, April 12, 2015.

Alaska Business Monthly, New Bill Creates Up to $2 Billion in State Revenue While Protecting Future Permanent Fund Dividends.” Alaska Business Monthly, April 20, 2015

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Drop in Oil Prices Causes Concern for the Future of Alaska’s Permanent Fund Dividend

The recent drop in oil prices has had a devastating effect on the Alaska state government’s budget, most of which is derived directly or indirectly from current oil revenues. Alaska’s Permanent Fund Dividend (or PFD—Alaska’s small basic income) is not financed by current oil revenue and so is technically unaffected by fluctuating oil prices, but budgetary pressure from declining oil revenues could cause political pressure to divert revenue from the PFD into the main budget.

The PFD is financed by the Alaska Permanent Fund (APF), a sovereign wealth fund set up in 1976 to make some of Alaska’s oil windfall permanent. The APF is protected by the state’s constitution: the state can spend only the returns to the fund, not the principle. But the PFD does not have similar projection. It was created by an act of the state legislature in 1982, and even with 33 years of precedent, it is vulnerable to legislative decision. The PFD is so popular that it has been called “the Third Rail of Alaskan Politics,” meaning that any legislator who touches it dies. But budgetary pressure could change that political condition.

Alaska Dispatch News

Alaska Dispatch News

The recent decline in oil prices on top of a large tax cut the state government gave to the oil companies a few years ago has led to a very large budget deficit—currently projected at about $3.5 billion. Legislators are discussing how to fill the deficit. Some legislators have promised not to divert money slated for the PFD, but some recent editorials have called to divert money from the PDF to the general budget.

May different solutions are being discussed. One legislator has introduced a bill to amend the state’s constitution to permanently protect the PFD. A recent editorial calls for reversing the tax cut for the oil companies. One plan being proposed is to divert all new oil revenues to the APF, then use half of the returns from the APF for the PFD and the other for general revenue. Another plan calls for reintroducing the state’s income tax; the state has been without an income tax for as long as it has had the PFD. The absence of an income tax has been nearly as popular as the PFD. It remains to be seen whether support for the PFD will remain strong in the face of the prospect of reviving the income tax.

For more information, see the following articles:

Alex DeMarban, “Alaska Dispatch, Panelists suggest cuts, tapping Permanent Fund earnings to solve Alaska’s fiscal woes.” Alaska Dispatch News, October 5, 2014

Becky Bohrer, “Permanent Fund Dividend eyed for constitutional protection.” Valdez Star, Vol. 27 Edition 2, January 14, 2015

Becky Bohrer, “Lawmaker’s bill aims to guard Alaska Permanent Fund benefit.Alaska Dispatch News, January 9, 2015

Carey Restino, “It’s time to file for Permanent Fund Dividends, and contemplate changes.The Bristol Bay Times, January 30th, 2015

Fairbanks Daily News-Miner Editorial Board, “Alaska needs budget leadership: Bold solutions needed to fill revenue hole left by low oil prices.Fairbanks Daily News-Miner, December 14, 2014

John Havelock, “Alaskans should be willing to pay their share with an income tax.Alaska Dispatch News, January 26, 2015

Katie Moritz, “Senators: Everything but taxes, PFD on table to fix budget.Juneau Empire, January 21, 2015

KTVA “Walker administration tries to rein in Alaska’s budget.” KTVA CBS 11 News, December 16, 2014

Merrick Peirce, “Writing on the wall: time to dump SB 21.” Fairbanks Daily News-Miner community perspective, January 11, 2015

Ray Metcalfe, “A formula for securing Alaska’s financial future.Alaska Dispatch News, January 28, 2015

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ALASKA, USA: The Alaska Permanent Fund recovers from the financial crisis as worries continue about future revenues

On October 3, 2013, most Alaskans received their yearly dividend check—Alaska’s small, nearly unconditional, and nearly universal basic income. This year the dividend was $900, up slightly from last year’s dividend of $878, but still far below the level dividends reached at the height of the stock market bubble in 2008. Now that the fund that finances the dividend has recovered from the financial crisis of 2008-2009, dividends are like to rise over the next few years. However, the long-term future of the dividend is in danger from falling oil revenues.

 Acting Alaska Revenue Commissioner Angela Rodell announces the 2013 Permanent Fund Dividend. Sept. 18, 2013 -Loren Holmes photo from the Alaska Dispatch
Acting Alaska Revenue Commissioner Angela Rodell announces the 2013 Permanent Fund Dividend. Sept. 18, 2013 -Loren Holmes photo from the Alaska Dispatch

Every U.S. citizen who meets Alaska’s residency requirement (and fills out forms verifying their residency) receives a yearly dividend from the state government. A dividend of $900 per person, therefore, amounts to $4,500 for a family of five. The dividend is financed by the Alaska Permanent Fund, a sovereign wealth fund created out of state oil revenues in 1976. Since then, each year a small fraction of Alaska’s oil revenues have been deposited into the fund, which as grown to $48.5 billion as of December 1, 2013. The fund began paying dividends in 1982. Nearly 600,000 Alaskans received the 2013 dividend.

The fund itself is financially healthy. It has recovered all its losses from the 2008-2009 and it has grown to record high levels. But the rest of the state budget is not in such good shape. Last year the state government reduced taxes on oil companies in hopes that they would respond by producing more oil. The state has yet to see the additional drilling, but they are feeling the effects of lost revenue. Some legislators are talking now about raising taxes on individual Alaskans to make up for the revenue lost to the oil companies. With low taxes on oil and declining oil revenue, pressure could eventually amount to divert the returns of the Alaska Permanent Fund away from the Alaska Dividend toward ordinary state spending. At least some Alaskan legislators, State Senator Bill Wielechowski for example, argue for restoring taxes on the oil companies.

istockphoto via the Alaska Dispatch

istockphoto via the Alaska Dispatch

Recent articles on the Fund and Dividend include:

Senator Bill Wielechowski, “Compass: Repeal SB 21 and start real partnership with oil industry,” Anchorage Daily News, November 23, 2013.

Alex DeMarban, Bigger dividend checks likely as Permanent Fund swells $4.3 billion in 2013,” the Alaska Dispatch, September 27, 2013.

Craig Medred, “Alaska PFD: Oil wealth dividend will help federal workforce,the Alaska Dispatch, October 2, 2013.

Dermot Cole, “Forget $900. The important Alaska Permanent Fund amount is $47 billion,the Alaska Dispatch, September 18, 2013.

Jennifer Canfield, “Alaskans to receive $900 for 2013 PFD check,” Juneau Empire, September 18, 2013.

Carey Restino, “Opinion: When used thoughtfully, the annual Dividend can be far more permanent,” the Arctic Sounder, September 27, 2013.

Linda Watt, “Alaska far from ‘self-reliant’ image,” The Spectrum, Aug. 26, 2013.

Austin Baird, “Looking Back at the Permanent Fund, Looking Ahead to the PFD [Interview with Jamie Love],” KTUU-TV, August 16, 2013.

Posted in Alaska Dividend Blog | 2 Comments

Future of the Alaska Dividend in the balance during oil tax fight

The future of Alaska’s small basic income guarantee, the Alaska Dividend, is in the background while a fight is going on over the state’s oil tax policy.

The Alaska Dividend is a small basic income guarantee financed out of the Alaska Permanent Fund (APF), a pool of investments, accumulated from savings from Alaska’s state oil revenue. The future financing of the Alaska Dividend is indirectly related to all state government financing, for two reasons. First, if tax revenue ever falls short, the government could dip into the APF to finance state spending instead of the dividend. Many experts think the government is very likely to do this if and when oil revenues run short. It has in the past done so in surreptitious ways. For example it gives the penal system dividends for each prison inmate to help pay the cost of incarceration. Second, when revenue is high the state can (and often does) add either to the fund or directly to the dividend.

Referendum sponsors submit petition booklets to the Division of Elections on the July 13 deadline. (Vote Yes -- Repeal the Giveaway/Facebook)

Referendum sponsors submit petition booklets to the Division of Elections on the July 13 deadline. (Vote Yes — Repeal the Giveaway/Facebook)

This spring, the Alaska state legislature passed—and the governor signed into law—a bill to greatly reduce taxes on Alaska’s oil industry, claiming that it will stimulate greater oil production in the state. The hope of greater oil exports comes at an enormous cost. The new law reduces taxes on oil to 20 to 25 percent below the international average. Oil taxes account for most of the states income, and because of this bill the state budget will go into deficit spending for the first time in years. Yet, the bill has no provisions requiring oil companies to increase production to get the cuts. The oil companies get an unconditional increase in their share of revenue, and Alaska residents get oil the hope that oil companies might respond by increasing production.

A petition movement, called “Vote Yes — Repeal the Giveaway,” has begun in the state to force a vote to repeal the tax cut. The movement has turned in nearly 50,000 signatures to state authorities. If the state certifies that at least 30,169 of the signatures are valid, a referendum on the issue will be held in August of 2014—eight months after the law goes into affect.

Bella Hammond, former first lady of Alaska and widow of Jay Hammond, the father of the Alaska Dividend, has campaigned and written editorials in favor of repealing the cut. She and several other commentators argue that the cut is a significant threat to the future of the Alaska Dividend.
-Karl Widerquist, Cru Coffee Shop, Beaufort, NC July 31, 2013

For more information, see the following articles and opinion pieces about the issue:
Hammond, Bella, “My Turn: Protecting our legacy and future,” the Juneau Empire, June 19, 2013.
Gutierrez, Alexandra, “Oil Tax Referendum Meets Ballot Requirements,” Alaska Public Radio Network, July 29, 2013.
Dischner Molly, “Parnell spares budget vetoes, signs SB21,” Morris News Service – Alaska, May 29, 2013.
Forgey, Pat, “With stroke of governor’s pen, Alaska back in deficit spending,” the Alaska Dispatch, May 21, 2013.
Metcalfe, Ray, “Give away Alaska’s fair share of oil wealth, give away Alaskans’ PFD checks,” the Alaska Dispatch, May 20, 2013.

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Six Lessons from the Alaska Model for Progressive Politics

Basic income is a regular unconditional cash grant paid to all citizens without any means test or work requirement. It’s often dismissed as a utopian idea.

However, a basic income, or something very close to it, exists today in Alaska. It’s called the Permanent Fund Dividend (PFD) or sometimes “the Alaska Dividend.”

The PFD has been paying annual dividends to Alaskans since 1982 with no conditions except citizenship, residency, and the willingness to fill out a form. After following the Alaska Dividend since 1999, and I want to share six lessons that supporters of progressive economic policy should learn from what I call “the Alaska model,” but first some basic background.

In 1956, Alaska ratified a constitution recognizing joint ownership of unoccupied land and natural resources. In 1967, North America’s largest oil reserve was discovered in state owned areas on Alaska’s North Slope. In 1976, a state referendum created the Alaska Permanent Fund (APF), a portfolio of diversified assets, into which the government would invest a small part of the state’s oil revenue each year as a way to turn the temporary stream of oil money into permanent wealth. Back then, the state had no plan for what to do with the APF. In 1982, the state government finally decided to distribute part of the returns from that fund as a yearly dividend, and the Alaska model was born. The APF continues to rise with yearly deposits from oil revenue, and it goes up and down with the financial markets.

The PFD is derived from the returns of the APF’s investments. With some effort to smooth out the ups and downs, the dividend fluctuates with the markets. In 2008, the dividend (plus a onetime supplement of $1,200) reached a high of $3,269, which comes to $16,345 for a family of five. After the financial meltdown of 2008, the dividend has declined, reaching $878 per year in 2012. That’s still $4,390 for a family of five. Now that world markets have come back, the APF recently reach a new high of $46 billion. Higher dividends are likely to follow in a few years.

The APF and PFD are not perfectly designed, but they are an important and innovative example of democratic wealth existing in the world today. The APF is community-owned wealth invested in the private economy. The PFD converts some of the returns to that wealth into democratically distributed income. Together, the Alaska model is something, from which we can learn, and on which we can improve. An unconditional cash dividend of $4,000 to $16,000 per year for a family of five is significant for everyone except for the wealthiest people, and it is extremely significant for people living at the margins. It has helped Alaska maintain one of the lowest poverty rates in the United States. It has helped Alaska become one of the most economically equal of all 50 states. And during the 1990s and 2000s it helped Alaska become the only US state in which equality rose rather than fell. Alaska is doing something right, and the dividend is a part of it. Here are the six lessons from the Alaska model.

1. Resource dividends work and they’re popular

At a time when conditional social policies are under attack across the industrialized world, the Alaska Dividend continues to be extremely popular. It is sometimes called “the third rail of Alaska politics,” implying any politician who touches it dies. In 1999, a ballot initiative proposed diverting funds from the APF was rejected by more than 80 percent of Alaska voters. Think about that. It’s hard to get 80 percent of people to vote the same way on anything. But here we have 80 percent of Alaskans voting for a policy that fights poverty and promotes equality.

2. You don’t have to be resource rich to have a resource dividend.

It’s easy dismiss anything connected with Alaskan oil is an aberration, something possible only because of Alaska’s enormous windfall. But there are three reasons why nearly any political community can do what Alaska has done:

First, Alaska isn’t unusually rich. Oil transformed it from one of the poorer to one of the wealthier U.S. states, but Alaska is only the tenth richest of the states with a per capita GDP of about $42,000—only $2,500 higher than the national average. Alaska has no greater financial means than many other states and nations.

Second, the entire dividend is financed by only a small fraction of Alaska’s resource wealth. The APF is supported almost exclusively by taxes on a single resource, oil. Alaska’s taxes on oil are very low by international standards. And the state devotes only a small portion of that revenue to the APF. If Alaska devoted, say half of its potential resource revenue to the APF, the PFD could easily be five to ten times what it is now.

Third, every country, state, and region has resources—extremely valuable resources—but we don’t think of them the way we do of gas and oil because we’re so used to governments giving them away to corporations who sell them back at a profit and pay very little in taxes. Recent estimates by Gary Flomenhoft show that a resource-poor state, Vermont, could support a dividend two- to five-times larger than the PFD, if it made judicious use of resource taxes. The most resource-poor countries in the world are probably Hong Kong and Singapore, where millions of people are crowded together on a little island, and they have to import almost all their consumption goods. But these countries have fabulously valuable real estate. I wouldn’t be surprised if a tax on Singapore’s land could support something much larger than the Alaska Dividend. For the most part, the difference between being “resource rich” and “resource poor” is the difference between having the kind of resources states usually tax and the kind they usually give away for free.

3. Look for opportunities

Alaskans don’t have the dividend because they are resource-rich. They have it because some smart Alaskans took advantage of the opportunity. Common resources are being privatized all the time all over the planet. We could tax privatized resources, but the easiest place to start is at the moment of privatization. Every new well that’s drilled is an opportunity to assert community control of resources. So is every new mine that’s dug, every new reserve that’s discovered, every new smokestack that seeks to use the atmosphere as a garbage dump.

Less obvious opportunities are just as real. The US government recently gave away a huge portion of the broadcast spectrum to private companies for digital television broadcasting. If they had auctioned off leases to the highest bidder, they would have created a stream of income worth billions of dollars every year as long as broadcast exists. That was an enormous lost opportunity. Today, increased awareness about the need to do something about global warming is another opportunity. Two strategies currently being discussed, “tax and dividend” and “cap and dividend,” would make polluters pay for the damage they do to the environment and return the proceeds to everyone as a dividend. Opportunities are all around, if we look for them.

4. Think like an owner. Think like a monopolist. Think like Johnny Carson

There is a danger in the Alaska model. If everybody gets paid when we privatize resources, they might want to privatize more resources and allow more damage to the environment. The solution to this problem is that once the community demands fees for the use of its resources, it asserts ownership of those resources. Once members of the community begin to think of themselves as the owners of their environment, new opportunities open up. The community is the owner; government is the broker; business is the hired help. The owner sets the terms of rental. They can allow private exploitation of their property only with strong environmental protections attached. The right to compensation is only one of the rights of ownership—along with it comes the right to manage, regulate, and restrict access. Receiving payment for resources helps the members of the community think of themselves as joint owners of the environment with the power to insist that tenants be good stewards of the environment.

Once members of the community start to think of themselves as owners of the community’s resources, they need to realize that, as a group, they have a monopoly over those resources. Monopolists don’t sell all they can at bargain prices. They restrict supply, selling less to get higher prices. Once we think about maximizing profit from resources, big corporations can forget about bargain deals.

But we should not think like just any monopolist. We should think like Johnny Carson. Who? In the 1970s, Johnny Carson hosted the most popular talk show on American television. Because he could have gone to any network and brought his audience with him, he demanded and got a salary that made him the highest paid entertainer in the world, but he didn’t stop there. He gradually demanded more vacation time, eventually getting something like four months per year. Then, he decided to reduce his weekly workload by one day. So he worked four days a week, eight months a year, and he was still the highest paid entertainer in the world. Johnny Carson realized that his time was valuable not only when sold, but also when unsold. As monopoly owners of the commons who think of our environment the way Johnny Carson thought of his time, we could have more money coming in while we also secure larger parks, more nature reserves, less pollution, and better resource management.

5. Build a constituency

The feeling of shared ownership is one of the reasons resource dividends tend to be so popular once they’re in place. They build a large constituency who will defend the policy when attacked. Talking to Alaskans reveals a greater sense of ownership of Alaska’s oil reserves than of other state property and a greater sense of ownership of the APF than of the state’s oil reserves.

Another way way to build a constituency is through universal rather than targeted policies. It is easy for politicians to single out the recipients of targeted programs, because they are a relatively small and marginalized group, but a dividend, large enough to make a difference for the majority of the population, is much safer from attack.

Democratic wealth
Democratic wealth

A third way to build a constituency is to make policy significant. Insignificant gimmicky programs might be easier to pass, but they are also easier to cut when a less favorable administration comes into power. If a politician proposed cutting the Alaska Dividend, all Alaskans would face losing $1,000–$2,000 a year for the rest of their lives. Whether that politician was promising a tax cut or some other spending program, they would put a universal constituency of Alaskans in the position where they would sacrifice something very significant for the uncertainty that the replacement will be delivered. Alaskans care about the PFD because it makes a difference in their lives.

6. Avoid creating an opposition

Just as some policies create larger constituencies than others, some create greater opposition than others. Policies, such as the minimum wage and rent control, put most of their burden on one, specific, easily identifiable group who will probably fight the program as long as it exists. Even if financed by broad-based income tax, targeted redistribution can create an opposition if a significant number of taxpayers see it as something they’re unlikely to need.

The APF and PFD have virtually no opposition. No one has reason to feel burdened by their creation and continued existence. It’s just a pile of money that the state happens to own. No one feels infringed by it. Of course, the APF is created and continually enlarged by taxes on the oil industry, and they do try to lower their tax burden as much as they can. But they have much harder time making complaint to the public. Opposing oil royalties is like complaining that they have to pay a price for steel, trucks, or ships. It doesn’t make sense to complain about what is obviously an unavoidable cost of doing business. That’s just the way of the world. In Alaska, Norway, and some other places, the state owns the oil fields. Anyone who wants to drill must pay. And now that’s the way of the world. A good solid policy can change the way the world works.
-Karl Widerquist, Doha, Qatar, April 26, 2013

About the author

Karl Widerquist is an Associate Professor at SFS-Q, Georgetown University. He is the editor of Basic Income News and the Basic Income Earth Network’s NewsFlash. He writes the Alaska Dividend Blog. His publications include dozens of articles and six books, including Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model and Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World, both of which are coedited by Michael Howard.

This essay was originally published as, “The Alaska Model: a citizen’s income in practice,” Karl Widerquist Our Kingdom: Power & Liberty in Britain, 24 April 2013 ( and it is heavily based from a chapter by Karl Widerquist and Michael W. Howard in Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model.

Our Kingdom
Our Kingdom
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