There are a number of reasons -- the significant adverse effect of cuts on the overall Alaska economy & families, its critical role in protecting against raids on the corpus, its role in creating a private sector economy similar to those in other oil producing states.
But another, similarly important reason is the significant role maintaining the PFD plays in restraining government spending to long-term sustainable levels.
Because PFD cuts largely don't affect their donor class, some legislators from more affluent parts of the state (or more affluent themselves) have made clear that they have no problem cutting the PFD to zero. Their willingness to do so enables them to avoid focusing on the hard work of constraining spending.
As Governor Hammond well understood, "the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax." Diapering the Devil at p. 31. Cutting the PFD enables the legislators to put off the date they have to do so even longer.
Because PFD cuts largely don't affect their donor class, some legislators from more affluent parts of the state (or more affluent themselves) have made clear that they have no problem cutting the PFD to zero. Their willingness to do so enables them to avoid focusing on the hard work of constraining spending.
As Governor Hammond well understood, "the best therapy for containing malignant government growth is a diet forcing politicians to spend no more than that for which they are willing to tax." Diapering the Devil at p. 31. Cutting the PFD enables the legislators to put off the date they have to do so even longer.
It provides a cushion of an additional $750 million - $1 billion (and growing) in revenue before they have to begin confronting the need for taxes. They can continue to say "yes" to their constituents -- particularly including those corporations tied to government spending which make up a significant part of their donor class -- to a much greater extent and for a lot longer than if they were confronted instead with the need to raise new revenues through taxation now.
That delay has significant, long-term adverse consequences to Alaska, however. As is the case at the federal level, all that resulting increase in spending ultimately will do is bring Alaska closer to economic peril.
That delay has significant, long-term adverse consequences to Alaska, however. As is the case at the federal level, all that resulting increase in spending ultimately will do is bring Alaska closer to economic peril.
Enabling spending to increase up to the level it can be funded through current revenues plus conversion of the PFD to government revenue will put the overall Alaska economy at even greater risk the next time oil revenues decline or, once we start relying on that source of revenues, investment returns drop.
A significant portion of the Alaska economy is already built on a somewhat artificial base of free government services funded by oil revenues. We have seen the last four years how unreliable that is.
A significant portion of the Alaska economy is already built on a somewhat artificial base of free government services funded by oil revenues. We have seen the last four years how unreliable that is.
Expanding spending to include the PFD simply will double up on that artificial base by including free government services dependent on projected investment returns. Those with long-term experience and a long-term perspective in financial markets know how unreliable those are as well. See, e.g., Financial Times, "Norway’s oil fund could lose over $420bn in next big market crash" ("The $1tn fund said that it could lose more than 40 per cent of its value in a single year because of a combination of a plunge in stock markets as well as a potential strengthening in the Norwegian krone.")
From our perspective it is important to draw a line in the sand on state spending now. We may need more than our current revenue base can sustain, but as Governor Hammond said, the revenues to fund any addition should only come to the extent "politicians ... are willing to tax."
From our perspective it is important to draw a line in the sand on state spending now. We may need more than our current revenue base can sustain, but as Governor Hammond said, the revenues to fund any addition should only come to the extent "politicians ... are willing to tax."
Going beyond that -- by converting the PFD to government revenue -- only walks Alaska's economy farther out on thinning ice, so that Alaska is over deeper water and farther from shore when the ice inevitably fails. It also removes the safety net that the PFD provides to the Alaska economy and Alaska families during challenging economic times, making the economy and those families entirely dependent on government when those times come.
That, inevitably, will lead to an even larger crash and burn for the overall Alaska economy and Alaska families than if we start to face up to the hard work of reigning in spending now.
The Alaska Senate started hearings yesterday on SB 196, a bill that would purportedly impose statutory limits on spending. They will tell you that approach is the solution to Alaska's spending binge.
The Alaska Senate started hearings yesterday on SB 196, a bill that would purportedly impose statutory limits on spending. They will tell you that approach is the solution to Alaska's spending binge.
But as we have seen with the PFD, Alaska statutes dealing with fiscal issues are nearly as worthless as the paper on which they are written. They don't even have to be repealed; they can just be ignored.
What we need instead are hard, real world limits on spending.
What we need instead are hard, real world limits on spending.
As Governor Hammond wisely understood, those are only created when government spending is put on a "diet forcing politicians to spend no more than that for which they are willing to tax." Cutting the PFD enables them to dodge that diet yet again, allowing them to continue to fatten government spending, putting the Alaska economy and families at even greater long term peril.
We have the opportunity to stop that now by preserving the PFD, and from the perspective of building a sustainable economy and budget that is exactly what we should do.
We would suggest the results of the Governor's and legislature's proposed spending levels would look much different if we do. Regardless of what the Alaska Senate tries to tell you about SB 196, we doubt it will if we don't.
We have the opportunity to stop that now by preserving the PFD, and from the perspective of building a sustainable economy and budget that is exactly what we should do.
We would suggest the results of the Governor's and legislature's proposed spending levels would look much different if we do. Regardless of what the Alaska Senate tries to tell you about SB 196, we doubt it will if we don't.
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