4 Alaska, the PFD reduced the poverty rate from 20.4% to 16.4% in the same period (Berman & Reamy, 2016). The PFD is considered a major source of cash income for rural Alaskans due to a lack of other economic opportunities in those regions. The disparity in sources of income also results in different consumption patterns between rural Alaskans and the relatively wealthy population groups in the urban areas. Rural Alaskans tend to spend the PFD on nondurable goods to cover living expenses, while the wealthier urban population tends to save their dividends. This indicates that if the PFD were to be revoked, its impact would be significantly higher on rural Alaskans. Estimates from the study also show that the Alaska PFD boosted 15,000 to 25,000 Alaskans out of poverty on an annual basis for the period under review (Berman & Reamy, 2016). The ability to lower poverty rates is highly dependent on the size of the dividend and the state of the economy for any given year. Furthermore, the poverty rate for Native Alaskans in the rural areas is especially high. Without the PFD, one-third more Alaska Natives would have faced an income drop, placing them below the poverty threshold. The study indicates that the PFD has substantially lowered poverty rates among rural Alaska Natives, from 28% to 22% (Berman & Reamy, 2016). A similar, decreasing trend in the poverty rate also is seen when looking at Alaska’s senior population, from 5.8% without the PFD to 4.3% with the PFD (Berman & Reamy, 2016). Even though poverty rates show an increasing trend in urban Alaska, they remain below those in rural Alaska, where there are fewer employment opportunities. Given the significant impacts of the PFD on these population groups, eliminating the PFD to alleviate the budget deficit challenges will significantly increase the number of Alaskans living below the poverty line. Finding Balance: A Framework for a Sustainable Future Alaska’s budget crisis is sufficiently dire that no one solution will suffice. Focusing on a single approach would yield high taxes, deep spending cuts, or unsustainably large transfers from the POMV draw. Instead, Alaska must take a balanced route between reallocation of the draw, spending reductions, and new revenue sources. Among these options, there are no painless choices; however, a balanced approach can help ease the transition to a more stable system of funding and execution of the business of government. The state has tried to reduce spending and diversify its revenue streams, but there is more to be done to arrive at a permanent solution. Reallocation of Percent of Market Value Draw As discussed previously, SB 26 enabled Alaska to no longer restrict the draw from the PF earnings. This bill allowed the state to appropriate a significant portion of the draw to cover expenditures, lowering the fund available to pay dividends. As a permanent alternative to close the budget gap, Governor Dunleavy’s current administration has also proposed a 50/50 draw, where half the appropriated amount is dedicated to paying out PFDs and the other half is available to supplement the state budget. However, this option is shortsighted: taking this approach will enable the state to rely on savings once again at the expense of PFDs. By enacting SB 26, the state has already implemented an action to redistribute the draw between PFDs and state expenses. Taking a 50/50 approach might enable the state to once again rely on savings as a permanent solution. Instead, the state must explore options that utilize savings for emergencies instead of as a primary solution. Spending Reductions Alaska’s spending continued to grow even after a large revenue decline occurred starting at the end of the 2000s. Between FY 2009 and FY 2019, the budget for agency operations increased by just under 30%, or an average of about 3% each year. Over the same decade, inflation averaged 1.73% per year, and the population grew an average of 0.4% per year. If policy makers had kept spending in line with inflation and population growth, the agency operations portion of the budget would have grown an average of roughly 2.11% per year (instead of 3% per year) and saved the state over $551M over 10 years, more than one-third of its current budget
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