Own a Piece of the Pipe - Part 1

A Straight-forward Idea or a Complex Evaluation


At first blush, Ethan Berkowitz’s Owning a Piece of the Pipe idea seems fairly simple. In fact he stated, "To us and most Alaskans this is a pretty straight forward idea, the notion that Alaskans should also have the right, if they individually choose, to be able to own a piece of the pipe."

The idea may sound simple, but the implementation is decidedly more complex.

For example, Ethan Berkowitz has selected the Permanent Fund Dividend check-off as the appropriate vehicle to raise funds for participation in the pipeline project. But no analysis is provided regarding the impact on Alaska businesses if the program is as successful as he hopes.

A successful PFD check-off program will divert money from the Alaska economy and Alaska small businesses to a pipeline project that may or may not need the assistance of Alaska financial support to be viable.

"If we have about 20 percent of Alaskans participate in this proposal, which is what our projections would be, we'll see the cumulative effect of about $800 million in investment."

Ethan Berkowitz projects about 20 percent of Alaskans will participate in the opportunity to invest in the pipeline resulting in the cumulative effect of about $800 million in investment and perhaps close to $1 billion.

What will the impact be of diverting as much as $800 million to $1 billion away from the Alaska economy and into supporting a gas pipeline project? Many small Alaska businesses, in order to balance their budgets each year, depend on people spending their Alaska PFD’s and purchasing goods and services in Alaska. I think that Alaska small businesses would be very concerned about the impact on the viability of their businesses of such a large diversion of permanent fund dividends to the pipeline project.

An analysis should be done of the impacts of such a substantial loss of revenue to Alaska businesses prior to proceeding ahead with such a proposal.

Who will invest?

Diane Benson, the lieutenant governor candidate, says she would have been excited to have an opportunity like this when she was a young mother of limited means. Her statement suggests that she believes all Alaskans, regardless of their financial status, would seriously consider investing their PFD’s in the pipeline. Actually, reality is far different than the picture she projects. A young mother of limited means is barely able to balance her budget. The last thing she is going to consider is taking her PFD, investing it in a pipeline project, paying the taxes on the PFD income, and hoping some day that her investment will return a profit to her. She, and many others like her, will be using their dividends to catch up on paying bills, and possibly, they hope, have a little left over to do or spend on something special with the surplus.

The typical person that will be able to invest their PFD in the pipeline is a middle to upper income individual that does not need the PFD to pay for the basic necessities of life, a person that has sufficient surplus income that they can afford to lose it if the pipeline project fails to reap a profit.

So even though this program is touted as benefiting all Alaskans, as a practical matter, a much smaller cross-section of Alaskans will be able to avail themselves of the opportunity to participate. And if they participate, there has been no research, and apparently the question hasn’t even been asked, about the impact on the Alaska economy of these individuals diverting their PFD’s to the gas pipeline instead of investing them in their local community.

Ethan Berkowitz may want to reconsider using the Permanent Fund Dividend check-off as the vehicle for providing Alaskans with an opportunity to participate in the pipeline.

He may find that the negative impacts from the loss of revenue to the economy will exceed the benefit received by the pipeline. He might still want to consider some form of state ownership or participation in the pipeline and perhaps allow the public the opportunity to participate in the project through participating in the financing of the project. Perhaps the public could be provided the opportunity to purchase bonds in the project instead of acquiring an ownership interest. This would be a much safer, less risky venture for the Alaska public.

If Ethan Berkowitz continues to propose this idea, the next stage of his multi-part plan should begin to address this issue.