Juneau, Alaska

(907) 699-6788 ed.king@kingecon.com

The 3 Opposing Views of the PFD

The legislature is currently debating the future of Alaska’s Permanent Fund Dividend (PFD). The operating budget has passed, without a PFD. A separate appropriation bill for the PFD has failed on the Senate floor. The House minority tried to stuff the PFD into the capital budget, but didn’t have the votes. And now, a “PFD working group” has been created, which went to work immediately, and is apparently preparing a history lesson for Alaskans.

I’m looking forward to that report. It is tempting to think that this issue is new, having arose from the ashes of the oil price crash in 2014. But, the same debate we are having today has been had before. For most of our history, the opposing voices were muted by the steady flow of oil money gushing into the state coffers. But, in two distinct periods, this same debate raged with significant public interest. First at the inception of the Permanent Fund; then, around the turn of the century when oil prices bottomed out.

The narratives being voiced today are not new. The arguments have all been made before. And from what I have heard over the years, and read about in history books, I think I can tease out the root cause of the disagreement. I think that’s important. Because, only by seeing an issue from all angles can we draw a complete picture. And, as the issue is being debated and decisions about the program are being proposed, I hope that we can appreciate that those conclusions stem from different root assumptions.

I was going to wait until I was finished with my time with the state (I have two weeks left) to post this. But, the debate is too timely right now and the PFD working group appears to be attached to a rocket. So, I’m going out on a limb and doing it today. Just know that I’m not writing this as a public official. This is not an opinion piece. It is not intended to be persuasive. I am merely attempting to help all of us expand our point of view.

That said, I do have personal opinions on this matter. As such, I am sure that they will drip between the lines as I write. For that, I apologize in advance and assure you that I attempted to remove as much as I could.

So, if you’ve already made up your mind about this topic, I welcome your criticism in the comments and a share on social media about how wrong I am. But, if you’re genuinely interested in gathering information before generating an opinion, I hope this (and the future posts on the topic) helps.

The Root Cause

I’ve written before that the PFD can be viewed in different ways. I explained how a person can see it as a government handout or as personal income, depending on your premise. I also concluded that a reduction to the PFD calculation is technically a tax (at least from an economics perspective) regardless of your belief.

But, in all the debate I heard this year, I realized that we need to go back a step. There is something more fundamental that creates what I think are three distinct trains of thought. In a word: ownership.

Collective Ownership

Maybe you’ve heard this idea thrown around: “we are an owner state” or “we own our resources in common.” As best as I can tell from my reading of history, we should credit this phrase to Wally Hickel. But Governor Hickel didn’t make the decision to own our mineral rights in common. The Federal Government made that choice for us.

I will probably talk about how that happened in a future article. For now, just keep in mind that individual Alaskans are prohibited from owning subsurface rights from lands granted to Alaska by the Federal government. It wasn’t a socialist desire by our delegates. It wasn’t a formulated decision by our forefathers. It was a consequence of the conditions present at the time of statehood.

So, given the constraint that our resources cannot be privatized, what does that mean? If no one person can own a resource independently, who does own our resources?

How you answer that question will determine which train of thought you board. And, from what I can tell, these are the three trains in the station:

  1. The Libertarian Express
  2. The Liberal Line
  3. The Tax Bypass

The Libertarian Express

It is possible to own something individually and in common at the same time. Take Prudhoe Bay for example:

The leasehold rights to the Prudhoe Bay oil field are owned jointly by BP, Exxon, ConocoPhillips, and Chevron. Each party has a partial ownership interest. BP acts as the manager of the field and each owner has voting rights. We typically say that the field is operated by BP, but the asset is collectively owned by all four companies. Revenues in excess of expenses from the asset are distributed to the owners proportional to their ownership interests.

Each of those companies are, in turn, owned by shareholders. The company is managed by a board, and operated by a CEO. The board members have control over most decisions, and shareholders have voting rights. While we commonly say “BP” makes a decision, the company is nothing more than a collection of owners and employees. That is, the company is collectively owned by many people. Revenues in excess of expenses from the assets are distributed to the owners proportional to their ownership interests.

Under this framework, it is clear that collective ownership does not imply that revenues belong to the whole. That is, individuals can be owners in common.

And so, this train of thought goes, if Alaskans are collectively owners of the resources, then revenues should be distributed to the owners. Sure, the legislature acts as the board and the Executive branch acts as the manager, but the people are the owners and they have voting rights.

Under this logic, those ownership shares are not traditional equity interests (you can’t sell them). But, that merely means they are restricted shares with a silent reversionary clause if conditions are not met. That doesn’t invalidate the ownership. Neither does the Supreme Court’s finding that the payments are made by the legislature.

The fact that a board authorize a check and the executive officer signs it does not invalidate the owners’ interests. The courts simply found that the dividend is subject to appropriation just like every other contract and program that flows through the state treasury. Even if they didn’t find in that way, the legislature would still have the power to tax it away regardless. The court would have simply found that the withheld portion of the PFD was a tax, and the legislature has taxing authority.

But, the ability of the legislature to withhold the distribution does not remove the ownership interest. So, that court finding means nothing while aboard this train. The resources still belong to the people, and they are due a share of the revenues.

The Hammond Extension

The next stop approaches. The Permanent Fund Dividend would then be akin to a corporate dividend. It is simply a distribution of revenues to the owners for their interest in the assets. Therefore, using this money to fund government services is a tax on the owner’s personal income stemming from their mineral rights.

It follows then that if the government wants to take income to pay for government, it should be a separate action. Pay the PFD, then “recoup” what you need in the form of traditional taxes or fees. This is the approach that Governor Hammond lays out in his manuscript of “Diapering the Devil.”

I call this the Libertarian Express because of the implications of the route. If you ask a libertarian “given that you cannot put ownership of the public good into private hands, how should we manage the resource?”, they would likely answer like this: “To maximize personal liberty, you should allow each individual the right to choose what to do with his portion of the public good.” In other words, if you can’t privatize the resource, privatize the revenues. It seems that Hammond was a Libertarian.

The Liberal Line

The second train begins down a different path. This train starts with the idea that owning something in common means that it is owned by all of us, together. That is, the resources are not owned by a collection of individual owners, they are owned by the monolithic construct that exists as a collective – the “government.”

An analogy would be how we think of our body. We don’t think of ourselves as a collection of individual cells, we think of that collection as one unified being. This is the way that some people view society, or government. Sure, it is made up of individuals, but we coexist for a common good.

The next stop on this train is to conclude that a commonly owned resource does not belong to any of the individuals. Therefore, the revenues generated from those resources should benefit the common good. By the way, this is how Hickel describes the situation in “Crisis in the Commons.”

The Equity Switch

There is a fork in the line at which people that boarded the same train of thought can arrive at different destinations. It really depends on which way the switch is flipped when it comes to prioritizing the wellbeing of society.

For some, government services are the holy grail of social improvement. By providing public education, transportation, healthcare, and other services, the individuals in society are put on more equal footing. By this logic, more government services means more equality. And the more equal society is, the more utopian it becomes.

For others on this train, poverty alleviation is the goal. By directly helping those most desolate among us rise to their feet, they can walk on their own. A society without poverty would be that utopian dream. From this spur, income equality is best achieved in a Robin Hood fashion. Tax the rich and distribute it to the poor.

This train diverges when a conflict between the social programs and the poverty alleviation approaches. Those on the former track would prefer to cut the direct financial support in favor of the social programs. Those on the latter would like to reach further into the pockets of the rich in order to maintain both.

The Tax Bypass

The final train starts it journey by asking the philosophical question: “is property that belongs to everyone really owned by anyone?” Take the air for example. We all use it. It “belongs” to all of us. But does anyone own the air we breath?

The next stop on this train is clear. Isn’t the revenue generated from something owned by no one best used in the same way we use the air? It follows then that the resources should be managed in the same way.

Just as we have a Clean Air Act to regulate the use of that common resource, shouldn’t the government manage the use of our resource revenues in a way that maximizes its use?

And what better way to use the free money that belongs to no one individually, then to reduce the negative effects of taxation? In this way, we can attempt to minimize the interference of government in the markets in two ways. First, reduce the size of government and regulation. And second, minimize the extraction from economic activity created by the people. From the fiscal conservative’s perspective, this is the best of both worlds.

If you ride this train of thought to the end of the line, the PFD is simply residual revenue. That is, once you eliminate all the government bloat and you remove all of the individual taxes, everything that is left over can be given to the people. After all, they can spend money better than the government can.

But giving money out with one hand and taking money back with the other would ring of both inefficiency and inequity. I mean, wouldn’t the net effect be to take money out of the pockets of the productive people while distributing it to those that choose not to earn their own way?

Strange Bedfellows

Taking a peek into the differing opinions, you can see where they lead. When the question is asked “should we pay a full PFD”, the Libertarian Express offloads on the green button. Meanwhile, the Tax Bypass pulls up to the red button. You end up with some of those with an “R” by their name at each destination.

Those carrying the “D” moniker board the train together. All value the poverty alleviation that results from distributing money to the poor. But not all of them make the same connection when it comes to dealing with financial troubles. For some of them, revenues are finite. A distribution of money to the people feels like it is at odds with maintaining the social programs they support. With limited funds, social programs come first.

The rest see no tension. Those programs can be supported through new taxes, or increasing existing ones. Choosing to support those programs by reducing the payments to the poor rather than taxing the rich is the opposite of their identity. And that is an unforgivable sin.

And so, we end up looking at the people that arrived at the same conclusions for different reasons and ask “how did that happen?”

Rock, Paper, Scissors

The tension between the budget, the PFD, and taxes creates this interesting ranking system by these different points of view. It boils down to this:

The Libertarian view puts the PFD first. In fact, it’s not even viewed as a budget item per se. While it does come out of the treasury, that’s just a matter of logistics. Because Alaskans were denied private property rights, we each own a fraction of those resources. And, the PFD is the distribution of our jointly owned resource wealth to the owners. So, from this view, the PFD can’t be reduced without taxing the resource owners. This leaves a tension between government services and taxes. And, the Libertarian always seeks less government and lower taxes.

The Establishment Republican’s primary view is that personal income taxes are detrimental to the economy. Thus, we should do anything we can to avoid them. This creates a trade-off between government services and the PFD. By viewing the oil revenues as “free money” (that comes from outside the economy), the question is simply how to best spend it. Yes, fiscal conservatives like a smaller government. But, they are ok with any level that doesn’t require “real” taxes. Because the PFD is viewed as a social program (which distributes excess revenues to the people), reductions to the PFD will always trump raising new taxes. And raising a tax in order to distribute that revenue to others is simply out of the question.

The view from the left is similar. These people also view the PFD as a social program and the oil money the same as any other government money. But, they view social programs as the top priority of government. So, budget cuts are off the table, leaving a tension between paying the PFD and providing other services. While they tend to like the PFD, they won’t cut services to pay for it. So, unless they can find other money, the PFD loses this battle. The question of supporting a PFD is a question of whether they believe doing so will hurt other programs rather than if it will hurt the recipients.

A few people from the far left imagine a bottomless well of money than can be taxed. So, from that view there is never a choice between the PFD and other programs. There is only a question of how much taxes to raise. And from that view, reducing the PFD is effectively taking money from the poor rather than from those that can afford it.

Is There a “Right” Answer?

When we have differing opinions, it is tempting to think we simply have different information. “If only they knew what I know, they would change their mind” we think. And so, we embark on this quest of trying to present evidence and rhetoric, intending to sway the opposing view by offering them a fresh perspective.

While that may work in cases of disputed fact, it does not work in matters of the heart. No matter how much information we present, we cannot make someone board a train of thought unwillingly. And so, no. There is no “right” answer here.

Some will attempt to point to courts cases as proof that their way of thinking is correct. But this isn’t a question of legal rights. Some will point to economic data as justification that their conclusions are sound. But this isn’t a question of macroeconomics. Some will point to the historic record and original intent. But history does not bind us.

The question here is a moral one. It is nothing more than asking “what is the right thing to do?” And the answer to that question is relative. It depends on which train you board.

If you personally believe in individual freedom above all else, you will board the Libertarian Express and conclude that giving people what belongs to them is the only morally right outcome. Funding the budget is a completely separate question.

If you personally believe that our resources are not owned by anyone and are merely managed by the government, you will board the Tax Bypass and conclude that minimizing “real” taxes in the morally right thing to do. As a result, you’ll seek to reduce the PFD as soon as you feel you can’t cut the budget any further.

And if you personally believe that the social contract is the key to happiness, you will board the Liberal Line. Where you disembark will be determined by whether you view revenues as fixed or flexible. In the former, you will conclude that cutting social programs is immoral and cutting the PFD is therefore justified. In the latter, you will find that taking from the poor rather than the rich is an act of evil and will defend the PFD.

Which train you board is not a question for the judicial branch of government. It is a case that must be decided in the court of public opinion. I just hope that the public is presented with all the evidence before they reach a verdict.

8 thoughts on “The 3 Opposing Views of the PFD”

  1. I totally agree with this article. The only qualm I have is that it isn’t in the hands of public opinion…as it seems public opinion doesn’t matter to some legislators. We can email, call, visit our Senators and Representatives until we’re blue in the face and it seems they turn a deaf ear. How do we the people fix the disconnect?

  2. Where do I start? First off, i am suspect of this king economic group. They claim to be Alaska’s financial advisor? Well, look at the financial mess we are in. Not sure I’d take their advice. That being said, the writer of this piece has done well. Myself being born and raised here and watched Fairbanks go from a nice town with the golden days parades, alaskaland, drag races down airport road. This town has gone to shit. I blame the city, borough, and state government. After all, it’s not me that gets to choose what we spend the money on. That’s done by government. Government on all levels is incompetent, disconnected, nonhumanitarian. They have a proven record across, ALL civilizations from the dawn of time, of being corrupt, with an insatiable thirst for spending. This government is no different. If you give them an inch they will take a mile. I boarded the libertarian train a long time ago. It’s what it means to be born in a free society. We have no freedoms. Right down to feeding yourself can be a crime. I love the threat to services. Honestly who cares? I just watched a live video of possibly 15 Anchorage police cars circling and pulling EVERY SINGLE CAR over. That is what you are threatening to take away? The harrassment? Be gone then. I dont need nor do I want to pay for that stuff. Go solve a real crime. Sorry, got off track. The threats to services is laughable to me because, I AM ALASKAN. You forget we are the toughest most resourceful people on the planet. We dont need the government bloat. Which brings me to this

    “If you ride this train of thought to the end of the line, the PFD is simply residual revenue. That is, once you eliminate all the government bloat and you remove all of the individual taxes, everything that is left over can be given to the people. After all, they can spend money better than the government can.”

    I chuckled at this because you think they will eliminate bloat and give the money to the people. When in the history has government sought to shrink itself and give back? When? That’s right, never!

    Wooo wooo! Libertarian train coming through!

    1. Thanks for commenting! I’d just point out that we can only give advice. The policy makers get to use it or ignore it.

  3. Who wrote this article? There was nothing wrong with the was the PFD has been paid since 1981 or was it 1982. Certain legislators just don’t like the public getting those funds period. They see it as an easy pot of gold for their revenue sharing, when they don’t have a sales tax, or to give to various non-profits, and for awarding contracts to people that don’t have to compete for them, and of course for grants and studies through various agencies. Outside legal fees when the State employs their own attorneys.

  4. I am on 4 trains, pay it by statuary formula thats a 5 year average for good years and bad years.
    Pay every resident out at a 100 thousand each let the state take 25% of the remaining ammount leave the remaining 25 % untouchable by the people or the state for 10 years to grow be reinvested and start the pfd payouts again using the triditional statutatury formula and every 20 years do a large pay out at 75% going directly to the residents. split 5th he remaining 25 % to the state and restart fund.
    or Give the properity owners back their subserface rights, meaning fight and sue the federal government to get them.

  5. Make the PFD only to the born and raised and in Alaska year round with a 30 day a year time span to be outta state!

    1. While that has appeal, that’s already been adjudicated. You can’t create two tiers: born here vs. not, of Alaskan residency. Damn that pesky “equal protection of the law” concept.

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