PFD - To Enshrine or Not To Enshrine

Debates about the Permanent Fund Dividend and the Permanent Fund tend to arise like a phoenix during election years. They are often used to arouse and enflame the public into voting for or against a particular candidate based on whether they want to protect the "Holy Grail." How the Permanent Fund is managed and whether or not the Permanent Fund Dividend should be enshrined in the Constitution are not good candidates for election year debates because legislators, during those debates, seem to be more focused on garnering votes and influencing the ballot box than they are in the financial future of the State.

That said, if the debate occurs, attempting to enshrine the dividend into the constitution without simultaneously dealing with the rest of the budget is like making a decision to take the family on a vacation to Disneyland every year regardless of the cost or impact to the family budget and also deciding not to plan for that expense through a rational budgeting process.

If enshrining the dividend into the constitution is on the table during this legislative session, the same bill should evaluate the rest of the Permanent Fund and how it will be managed into the future. A rational approach to a long-term financial plan that includes the Permanent Fund and addresses the Permanent Fund Dividend is an appropriate discussion for the legislature to have, but all three issues should be addressed at the same time.

And if enshrining the dividend is on the table, the legislature certainly wouldn't want to enshrine the current dividend formula into the Constitution. If anything the current formula brings instability and uncertainty to the program. There have been some years when there was concern, due to the poor performance of the Permanent Fund, that no dividend would be issued. And in the best year of the Fund, the payout was almost $2,000.00.

A much better dividend program would be to decide what a reasonable dividend would be in the first year, e.g., $1,000 and inflate it in future years based on the Consumer Price Index or other inflation factor. This would be a much more dependable and rational approach to issuing a dividend to the people of Alaska. The only problem with this approach is that it does away with the "Lottery Effect." People, often to their detriment, are willing to risk some level of certainty and security to obtain some additional benefit. The Alaska public, generally, may be more willing to give up a sum certain and the risk of a certain amount of loss for the potential benefit of a larger dividend.

In addition, any dividend program should be based on an "up to" amount. In certain situations, it may not be rational or reasonable to issue dividends to the Alaska public in the amount the formula allows. The legislature should always have the discretion to authorize a lesser amount. Generally their fear of being ousted by the public at the next election will protect the dividend from the legislature reducing it unless it is absolutely required.