One of WC favorite writers, Barry Hughart, wrote:
Well, it’s an idea. And even a bad idea is better than empty-headedness, which can only lead to the priesthood or a career in politics.
– Barry Hughart, The Story of the Stone
Which pretty much sums up WC’s reaction to former Gov. Frank “the Bank” Murkowski’s idea of tapping the Alaska Permanent Fund to address the budget shortfall.
Frank the Bank1 has proposed to revive an idea the Alaska Legislature considered back in 2005. The outcome of the 2004 Conference of Alaskans, the idea was to tap the Permanent Fund for 5% of its total value each year, splitting the take between education funding and the dividend to Alaskans. Any further growth in the fund that year – assumed to be 3% – would be kept to inflation-proof the fund. There were a number of problems with the idea, which is why the Alaska Legislature refused to adopt it.
First, it assumes 8% growth in the fund, which is hardly guarantied. In fact, the average return has been a little less than 7% over the last ten years. Doh! The idea, if adopted back in 2005, would have spent down the principal balance of the Fund.
The second problem is that Frank the Bank assumes the funds available under the proposal would be enough to balance the deficit. The current balance in the fund is about $54 billion. A 2.5% clip would have generated about $1.3 billion. Not exactly pocket change, but the current budget deficit is about $3 billion. Doh! It only covers 43% of the deficit. Better than a poke in the eye but it leaves Alaska looking for $1.7 billion.
The third problem is that Frank the Bank’s plan would cap the Permanent Fund Dividend at 2.5% of current Fund value, which this year would be about $1.3 billion. Just barely enough to pay 2014’s permanent fund dividend. If the current formula for calculating dividend amounts were applied to Frank the Bnk’s proposal, it wouldn’t have been enough. Doh! Stepping the third rail of Alaska politics: cutting the PFD.
So Murkie’s idea doesn’t work, and it especially doesn’t solve the intended purpose of balancing the budget. It cuts the budget, sure, but at the risk of jeopardizing the “permanent” in permanent fund. If the rate of return on the permanent fundell below 8%, or inflation climbed above 3%, both of which occur distressingly often, the fund would shrink. And the more it shrank, the bigger the damage to “permanent” would become.
What Murkie doesn’t get is that the Alaska Permanent Fund is intended to turn a non-renewable resource like oil and gas into a renewable resource, a fund of money from which the State of Alaska can clip coupons forever. Murkie would treat it like an crude oil reserve, from which the State of Alaska can extract money as and when it needs the dough. Remember, too, there aren’t any more Prudhoe Bays. The days of big contributions of new money into the Fund are done.
So it turns out that Frank the Bank’s really is empty-headed. Which, according to Hughart, means he is headed for the priesthood or politics.
Oh, wait. That’s already happened.
- WC calls the former U.S. Senator and Governor “Frank the Bank” because he killed Alaska National Bank of the North, Alaska’s oldest bank. ↩