A little over 18-months into a down cycle in oil markets Sen. McGuire proposes to make a permanent change to the 35 year PFD program which, if passed, would forever delink individual Alaskans from a financial interest in the Permanent Fund, turning the earnings over entirely to support for government spending and tying the dividend thereafter to oil revenues.
At the very time the fund is reaching significant size the effect would be that Alaskans would lose the benefit of what they have been investing in for over three decades, the Alaska equivalent of the federal government converting the Social Security Fund to supporting federal spending and linking subsequent payments instead to royalties from federal mineral lands.
The reason? To be able to maintain future spending at levels about 20% higher than they would have been had the state kept spending growth to inflation plus population growth over the last ten years, and which are justified by current sustainable revenue levels. Alaska doesn't need to go down this road.
Between the CBR and earnings reserve Alaska still will have roughly $12 billion in fiscal reserves at the end of this fiscal year, which when coupled with reducing spending to sustainable levels is more than enough to ride out the bottom of the current oil cycle without cutting the PFD or adopting broad based taxes.
This isn't about revenue; this is clearly about spending levels. And there is even a greater problem this creates. Because earnings from the Permanent Fund are variable, they also won't be sufficient to sustain elevated spending levels over the long term. As a result, going down this road ultimately will create a need for broad based and other taxes.
The Alaska advantage in developing our resources will be lost. We are coming up on an inflection point in Alaska's fiscal history. By continuing a government economy built on overspending, choosing to make permanent changes will send us down an increasingly difficult road.
http://www.alaskacommons.com/2016/02/09/sen-lesil-mcguire-debuts-alternative-hybrid-fiscal-plan
