Defending the Earning Reserves

The People’s Natural Resources, and revenue from their extraction, are to be managed by the legislature for the “Maximum Benefit” of the people.

ALL revenue from the development of AK Natural resources (not just the Permanent Fund (PF)) is ultimately ‘owned’ by Alaskans who are ‘shareholders’. The Governor does not have the constitutional responsibility of using Alaskan’s natural resources. The determination of what is “maximum benefit” for the people is made by the Legislature. The Alaska Constitution has a built-in safety of the PF (and arguably its earnings) requiring a vote of the people. The Governor’s recent initiatives to influence the spending authority for permanent fund earnings have generated a recall effort and litigation, either of which could hurt more than help. I certainly do not want the courts to be making decisions belonging to the legislature, and the legislature needs the collaborative help of the Governor to make the spending cuts to balance the budget … something that will be difficult if he is in a defensive mode.

Over time Alaskans have developed a constitutional system designed to divide every penny from natural resource revenue into two distinct categories: money appropriated by the legislature (general fund) and money only appropriated by a direct vote of the people (the constitutional PF). Both categories serve the same constitutional purpose: The people’s “maximum benefit”. The defining difference is government spending power of the PF is forbidden.

Arguably, the PF is ‘owned’ by Alaskans (in common) at a different level than other natural resource revenue. Obviously the definition of “ownership” has nuances, but in this context, it is at least clear that, unlike any other State, there is a property right and responsibility beyond legislative access tied only to residency. The constitution further creates the authorization for investment of the PF and for the legislative appropriation of return on investment earnings, without biasing its use for dividends or as general fund revenue.

The legislature subsequently passed laws authorizing a dividend to be appropriated equally to each resident from the PF earnings on investments of the PF, the Permanent Fund Dividend (PFD). These earnings are held in an earning reserves savings account (ERA). The legislature determined only a portion (50%) of the annual earnings can be distributed as PFDs, the rest has been growing the ERA to its current level of nearly $9 billion. This extra ERA growth has become the huge irresistible ‘plum’ the Governor and advocates for more government spending are after.

All ownership “nuances” are eliminated when the PFD checks are written. Taking the ER before it becomes personal property eliminates the accountability that would come with a traditional tax. Spending without this accountability link has created the most expensive state government in the USA.

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The PFD is taxable personal property and is meant to be managed and used by Alaskans under the inalienable rights guaranteed under the Constitution of the United States of America. Taxes are only politically feasible when voting Alaskans are content with the size of government.

“Restructuring the Permanent Fund”; “Protecting the Permanent Fund”; “Capping the Permanent Fund”… are code phrases for taking some of the coveted ERA and placing it directly into the general fund, just like the other 75% – the “spent” monetized natural resources. Simply ‘taking’ the money before it is personal property is not an option without a vote of the people who own it. It is not the right time to add ANY tax burden to Alaskans, but especially ‘taxes’ not clearly understood or specified in the constitution or state law. It IS the right time to make the cuts necessary to balance the budget while we have some transition money available in another savings.

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I am still trying to process the Governor’s recent comment that the veto somehow allows him to be the one to blame, thereby allowing the legislature to support his proposed revenue bills in the subsequent special session? It seems to reveal an incredibly low view of legislators. The implication is we make our decisions based on fear of blame rather than on the values and principles for which we were elected. I can only speak for myself, but I voted for the PFD appropriation in the budget for Alaskans to receive full PFDs because it was the right thing to do. I highly value the need to pay dividends to the owners (Alaskans) of the investment capital as promised.

Need for a Careful Decision with a Deliberative Process

The recently touted legal argument that the legislature MAY “legally use PF earnings” is accurate in the narrow sense of the words, but worthless! It doesn’t answer the real question of whether it is constitutionally or logically appropriate. Only the legislature makes the determination of what is “maximum benefit” for Alaskans. Our responsibility is to make clear laws to do the right thing — not to find a loophole allowing us to appropriate without a deliberate public process. Debate on this ‘legal opinion’ is a waste of time at this point. The legislative GF expenditure for PFDs is based on exactly the same legal authority and jurisdiction as would be the approval of spending from the earnings for any purpose. If the legislature chooses to spend the earnings merely to keep government afloat, potential consequences include:
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* Dividends will be capped or eliminated at some indefinite point when perceived needs warrant it.

* The PF investment board will encounter political pressure, beyond just the pressure to get the best monetary return.

* Misunderstanding of Legislative intent regarding use of the earnings reserves to settle future potential litigation. (This may have huge implications, for example, on the settlement of future retirement benefits shortfalls)

The point is simple. We have put MOST of the total natural resource money into the government checkbook to pay for government, and we have truly prospered in the pipeline era. The prosperity includes that which comes from jobs and services paid for with the high government spending. Now things are changing. Declining oil production and unexpectedly low projected prices have abruptly emphasized we cannot sustain our spending.

The next step must be to answer the question about ownership of the PF Earnings and propose a plan to keep us on the ramp to a balanced budget, a plan causing the least pain for most Alaskans. Alaskans could obviously choose to spend PF earnings to “extend the glide-slope” to bankruptcy or balance, but it must be just that — a choice of the people, not Governor imposition.

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