Cliff Groh

GUEST COMMENTARY: What are the most common misconceptions about the Permanent Fund dividend?

Editor’s note: This is the second installment of a continuing series; the first installment set out the original arguments for the dividend. Was the Permanent Fund created to pay Permanent Fund dividends? No. The Permanent Fund was created to save a portion of the oil wealth coming to the State of Alaska following the discovery of the supergiant Prudhoe Bay oilfield. There was no agreement about what exactly the amount saved would be used for in the future when the Permanent Fund was created in 1976 by an amendment to the Alaska Constitution, a process that requires approval by the voters. A review of the record shows that everything from dams to daycare centers to dividends were dangled as possible future uses of the savings to entice the people of Alaska to vote for that constitutional amendment. The most historically accurate explanation of the voters’ intent in 1976 appears to have come from Elmer Rasmuson, the first Chair of the Permanent Fund Board of Trustees: “The Permanent Fund began, chiefly, with a ‘negative’ goal, to place part of the one-time oil wealth beyond the reach of day-to-day spending.” The Permanent Fund dividend, by contrast, was created in 1982 by the Alaska Legislature through the adoption of statutes, which are laws the Legislature can make without getting approval from the voters. The two institutions are fundamentally different. The Permanent Fund is a public savings vehicle, while the Permanent Fund dividend is per capita universal direct distribution. Is the Permanent Fund Dividend constitutionally guaranteed? No. The Alaska Constitution contains no guarantee of any kind that Permanent Fund dividends will be paid. The constitutional amendment adopted in 1982 establishing a spending limit includes appropriations for dividends on a list of exceptions to that spending limit. That reference in Article IX’s Section 16, however, does not constitute any guarantee or requirement of payment. Has the Alaska Legislature guaranteed the annual payment of Permanent Fund dividends through the Legislature’s adoption of statutes? No. The Alaska Supreme Court answered this question definitively in 2017 in the case of Wielechowski v. State of Alaska. The Alaska Supreme Court ruled that the Alaska Constitution does not currently allow the Legislature to set up a system in which Permanent Fund dividends are paid in future years automatically. The Alaska Supreme Court stated: “Absent another constitutional amendment, the Permanent Fund dividend program must compete for annual legislative funding just as other state programs.” Is the Permanent Fund dividend what individual Alaskans got as a trade when the Statehood Act reserved to the State of Alaska the mineral rights to the lands granted by the federal government under the Statehood Act? No. The Permanent Fund dividend arose as a possible option more than 15 years after Congress adopted the Statehood Act in 1958. The Statehood Act provides that the “mineral lands” granted by the federal government to the State of Alaska pursuant to statehood are granted under the express condition that all sales, grants, deeds, or patents of those lands must be reserved to the State. This provision means that Alaskans cannot receive royalties as individual landowners from development of those mineral lands. The House Finance Committee adopted a letter of intent in 1982 regarding the legislation creating the Dividend that included the statement, “The Committee recognizes that virtually all the petroleum development in Alaska has occurred on publicly owned lands. This is in sharp contrast to other states, where vast accumulations of wealth have accrued to private landholders.” ^ Cliff Groh was the legislative assistant who worked the most on the bill in 1982 that created the Permanent Fund dividend we have today. He is also a lawyer who has litigated constitutional issues. Some material here overlaps with a chapter he co-authored with Gregg Erickson for the book Alaska’s Permanent Fund Dividend: Examining Its Suitability as a Model.

GUEST COMMENTARY: What were the original arguments for Permanent Fund dividends?

Editor’s note: This is the first in a series of pieces from Cliff Groh covering the history of the Permanent Fund dividend. I was the legislative assistant who worked the most on the bill that created the Permanent Fund Dividend in 1982. Advocates of the dividend offered essentially five rationales during consideration of the legislation that put in place the “equal payments for all” program we have today. The per capita dividend adopted in 1982 was the result of a bill that served as a backup — or backstop — for the original “the longer you’re here, the more you get” dividend created by a law passed in 1980 that quickly became stalled in litigation. The Alaska Legislature passed the bill providing for the per capita dividend as a backstop 11 days before the U.S. Supreme Court struck down the original dividend bill as unconstitutional, and so the first dividends were paid in the summer of 1982 under the backstop bill. The five arguments for per capita dividends made at the creation were: 1. Paying dividends out of the Permanent Fund’s income or earnings would build a political constituency to protect the Permanent Fund’s principal against raids by special interests. The logic: The bigger the Permanent Fund, the bigger the Permanent Fund dividend. A variant of this argument was that the dividend would strengthen political opposition to pork barrel spending and budgetary hypergrowth. 2. Paying dividends would provide greater economic “bang for the buck” than spending the same amount of money on the operating budget, capital projects, or loans to residents. A related argument was that compared to the alternatives, dividends would more efficiently allocate the surplus oil money coming into the State of Alaska’s coffers in the early 1980s. 3. Individuals have a right to use a portion of their oil wealth. This argument’s supporters pointed to the Alaska Constitution’s statement that “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.” Legislators recognized this individual entitlement to state-owned natural resources by adopting findings to the 1980 dividend bill stating that the legislation “fairly compensates each state resident for his equitable ownership of the state’s natural resources….” (The legislation in 1982 that created the per capita dividend we have today had no findings, however, as some legislators considered such philosophical statements too controversial to include in the bill.) 4. Permanent Fund dividends would deliver benefits more equitably than alternative uses of the surplus oil money. Gov. Jay Hammond — the most important supporter of dividends — contended that the powerful and well-connected were already benefiting from the state’s oil wealth through special-interest appropriations, often arranged behind closed doors. The repeal of Alaska’s personal income tax in 1980 further tilted benefits towards higher-income people, some of whom were non-residents. The state’s highly subsidized loan programs were also cited as examples of inequitable distribution. As I noted in a document circulated in the Legislature during the 1982 session, per capita Dividends by contrast “treat all Alaskans alike — whether they are rich or poor, or whether their home is Adak or Anchorage.” 5. Universal direct distribution of a portion of the Permanent Fund’s income would fortify the safety net for low-income Alaskans. Hammond never thought much of this argument, but legislators concerned over what seemed to them a possible perverse effect inserted “hold harmless” provisions in the 1982 legislation authorizing use of the state’s General Fund to offset loss of federal needs-tested benefits caused by receipt of a Dividend. Which arguments make sense now? Cliff Groh considers his work on the 1982 Permanent Fund dividend legislation perhaps his most interesting, challenging, and fun job ever. Some of this material overlaps with a chapter he co-authored with Gregg Erickson for a book published in 2012, one of four chapters Groh has authored or co-authored in academic books about the Permanent Fund dividend and Alaska fiscal policy.
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