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

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.

Alaska Dispatch News

Alaska Dispatch News

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 protects 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

Picture CC Travis

Drop in Oil Prices Causes Concern for the Future of Alaska’s Small Basic Income

Drop in Oil Prices Causes Concern for the Future of Alaska’s Small Basic Income

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.

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.


Picture credit: CC Ryan McFarland

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

Thom Hartmann, “What West Virginia can learn from Sarah Palin”

[Josh Martin]

In this post, Hartmann discusses the alarming inequality in West Virginia as well as the extreme poverty many families face in the coal-reliant state.  Hartmann acknowledges coal’s importance to the state by suggesting implementing a program similar to the Alaska Permanent Fund, which distributes a dividend funded by taxes on its oil reserves to each citizen of Alaska every year in the form of an unconditional cash transfer, making it a form of a universal basic income.  As Alaskans benefit from their state’s massive oil reserves, Hartmann thinks West Virginians should benefit from its coal business.

Thom Hartmann, “What West Virginia can learn from Sarah Palin”, Thom Hartmann Program, 7 July 2014.

Thom Hartmann

Thom Hartmann