Budget discussions in Alaska took a dramatic turn when the budget cuts announced by the governor became public. According to reports from KTOO Public Media, Governor Dunleavy vetoed 182 items from the operating budget approved by the legislature. These vetoes include significant budget cuts to diverse aspects of the state: $130 million from the university system, $68 million from school bond payments and the construction of rural schools and $58 million from Medicaid. According to Dunleavy, this is to balance the budget and for the state to be able to pay a full Permanent Fund Dividend, amount that waits to be agreed upon. This amount lies in the heart of the budget debate. Therefore, it is important to know where the money Alaskans receive once a year comes from.
The Alaskan economy depends on oil. According to the Resource Development Council, oil has created $180 billion since statehood. Having such a lucrative amount of natural resources can make the state’s economy dependent on this resource, which has a fluctuating market price. Because of this reason, in the 70´s, according to Alaska’s Permanent Fund Corporation, when the legislature quickly spent the revenue from the Trans-Alaskan pipeline, the need for having a mechanism that would protect state revenue and ensure long-term growth emerged.
Governor Jay Hammond pushed for a constitutional amendment approved in 1976 that created the Permanent Fund, a fund in which at least a quarter of all revenue from mineral resources would be deposited to invest in other areas -currently this includes the NYSE and multiple Real Estate properties, allowing for the diversification of oil revenue. This is known as “the principal”. The revenue from the principal is handled by the legislature and is in a separate account. There is no constitutional obligation regarding what to do with the revenue. However, since 1982, Alaskans receive a portion of it. This is the PFD. Hammond explained in a brief autobiography that he proposed this mechanism because it would foster citizen commitment in the handling of state resources and create a sense of ownership of natural resources.
The system worked well for many years. However, since the collapse of oil prices of 2014, oil states have had to navigate a fiscal world with less revenue. Alaska is one of them. During the administration of Governor Walker, the dividend was reduced, moving away from the established formula to calculate the amount. This was to fund the government and was legal, according to the Alaska Supreme Court.
However, Dunleavy ́s administration proposes a different direction: to return to the traditional formula to calculate the dividend and pay remunerations for the reduced dividends. The achievement of this goal is the justification for the cuts that have surprised the state.
The end of these debates remains uncertain, but the coming days are key for Alaska’s future and deserve close attention.
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