Something doesn’t add up with Dunleavy’s dividend plan

Gov. Mike Dunleavy. (Photo by Matt Buxton/TMS)

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Department of Revenue Commissioner Lucinda Mahoney and Deputy Commissioner Mike Barnhill appeared in front of the House Judiciary Committee on Monday to pitch legislators on a frankly great-sounding plan where Alaska pays out $2,300 dividends, needs only a measly $300 million in new revenue (or cuts) to balance the budget and starts running surpluses by the end of the decade. All it takes is a constitutional amendment (or three), several votes of the people, $3 billion in “bridge” funds drawn out of the Alaska Permanent Fund to cover the deficits between now and then, and, of course, for everyone to put off the discussion about taxes or cuts until after the 2022 election. It’s the kind of pain-free approach to the state’s budget problems that’s fit for the campaign trail (and the more state-sponsored advertising for it, the better). 

It only it were that easy. If it were, someone should also probably get ahold of Reps. Kelly Merrick and Adam Wool—the Eagle River Republican and Fairbanks Democrat who’ve each put together Serious Proposals to address the state’s financial deficit and settle the dividend without waiting until after the 2022 election—and let them know they can actually have their cake and eat it too.

Both of their proposals operate under the financial outlook and assumptions that everyone outside of the governor’s office seems to following: That, setting aside the merits of the PFD for a moment, the state’s budget by and large balances if the state were to zero out the dividend. Want to pay for a dividend and state services at the current level? Then you’ve gotta figure out how to pay for it. 

Merrick’s proposal would link the dividend to resource royalty payments, which would result in a roughly $500 PFD with no need for any additional cuts or taxes to balance the budget. Wool’s proposal would pay a dividend in the $1,000 range but requires a 2.5% income tax (about $580 million in taxes) to make the books balance. Hell, throw in Wasilla Republican Sen. Mike Shower’s proposal from the Senate floor debate that led to the $2,300 PFD in their budget and even he had the state hiking oil taxes and implementing a sales tax under a “everything goes right” scenario with rising oil production. 

The common thread here is that, surprise, paying out dividends is expensive.

The big difference here, of course, is that Wool and Merrick are starting from considerably different assumptions about the state’s finances and financial future than Dunleavy. While Merrick and Wool are standing up plans they believe can ride the ups and downs of Alaska’s economy, Dunleavy’s team is working off of what has been widely considered to be an incredibly optimistic outlook on oil revenue (and also needs an extra $3 billion in cash to smooth things out). Will oil revenue consistently climb over the next decade? DEFINITELY WITHOUT A DOUBT, essentially argues an administration that’s requested millions of dollars for expected legal battles with the Biden administration. 

Look, I’m no economist or budget… guy, but the simple fact that the proposals from Reps. Wool and Merrick are so extraordinarily different from what the Dunleavy administration is proposing ought to raise some eyebrows and warrant a deep dive into the numbers and the assumptions underlying them. While the legislator-driven proposals have the benefit of being amendable law, Dunleavy’s proposal would forever lock the state on a larger dividend with very little leeway if things go sideways. Maybe it works but there’s zero room for failure if he’s to keep his promise of a future with minimal taxes or cuts. 

But then again, that future is a whole election away.

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