AJOC EDITORIAL: Jobs drive the economy, not the PFD
The PFD is not a suicide pact.
The Alaska House and Senate are now engaged in a high-stakes game of chicken as the session has gone into overtime with less than 30 days to go before the mandated adjournment.
On one side is the Senate arguing it is protecting pocketbooks the most, while the House has taken the position of picking the most pockets.
At the center of it all is the Permanent Fund dividend.
The Senate would cap it at $1,000 for three years; the House at $1,250 for two.
The Senate Majority is adamant that it will not institute an income tax or raise oil taxes while the state is in a recession, and it does not favor the more generous amount of the PFD proposed by the House.
The House is equally adamant that using Permanent Fund earnings to fill the budget gap and reducing the amount available for dividends means they have to hit Alaskan workers with an income tax in the name of fairness and continue their neverending quest to keep plucking the state’s golden goose in the form of raising the burden on the oil industry.
Protectors of the PFD at all costs, which include the generally ideological opposites in Sens. Mike Dunleavy and Bill Wielechowski and statehood pioneers such as Clem Tillion, believe that the state’s top spending priority is the annual check in spite of ongoing deficits between $2 billion and $3 billion.
Nearly all rely on University of Alaska Institute of Social and Economic Research studies that count the PFD reduction as the costliest option to low-income Alaskan families.
Indeed the numbers bear that out, but the problem with the ISER study is that it uses a $2,000 PFD as the baseline for evaluating the impact of either the Senate or House plans.
Using a $2,000 PFD as a baseline unnaturally skews the numbers, however.
Since the first PFD of $1,000 was paid in 1982, only twice — in 2008 and 2015 — has the PFD been $2,000 or greater.
It would have been larger than that in 2016 as well, but Gov. Bill Walker vetoed half of the appropriation from $1.3 billion to $665 million to result in a PFD of $1,022.
We’ve heard time and again that the PFD is the best way for the state to spend money because it puts the decisions in the hands of the people rather than the government.
However, looking at the years following the largest PFDs in the state history shows big checks didn’t make a big impact on the Alaska economy.
In 2008, the PFD was $2,069.
The state lost 3,300 jobs from September 2008, the month before the checks were issued, until September 2009. The unemployment rate went from 6.8 percent to 8 percent.
In 2015, the PFD set a new high of $2,072.
This time the state lost 9,200 jobs in the following 12 months.
So much for propping up the economy.
In looking at the intervening years, the best thing for the Alaska economy is jobs, not the size of the PFD.
After the 2008 peak PFD, the size of the check declined every year for the next five (the 2012 and 2013 dividends were roughly equal at $876 and $900, respectively).
Over those same years, from 2009-2013, the state saw its population increase by 53,000, added 15,000 jobs, and the state gross domestic product grew by 20 percent from $50 billion to $60 billion.
Conversely, from 2014-15 as oil prices have crashed, the state paid out about $2.5 billion in PFDs with no corresponding uptick in economic activity and certainly not enough to offset the loss of thousands of six-figure paying jobs in the private sector across oil and gas, construction, transportation and professional services such as engineers.
Unlike an income tax, which reduces earned take-home pay, setting a dividend amount that is reasonable given the budget circumstances is the most prudent thing the government can do.
Under the Senate plan the PFD would be roughly equal to the historic average — which would be a much better baseline to use and would in fact show the low income Alaskans are being held largely harmless under the plan — and it would be larger than four of the dividends paid since 2003.
Under the House plan the PFD would be larger than half of the last 13 checks not counting 2016.
When ConocoPhillips lost $4.4 billion in 2015, one of the major steps it took was to reduce its dividend by two-thirds from 75 cents per share to 25.
That allowed it to keep investing while finding cost-cutting measures elsewhere.
It’s about time the state learned a lesson from the private sector instead of trying to bleed it dry.
Andrew Jensen can be reached at [email protected].