Dunleavy's re-election fiscal fantasy ignores two enormous risks

The people who manage the Alaska Permanent Fund try not to get caught up in the “up and down movement that happens daily, monthly or even annually.”

That’s how Angela Rodell, CEO of the Permanent Fund corporation, put it to legislators in a Feb. 23 hearing in Juneau. I recommend her presentation to those who wish to better understand how the institution really works and the need for a long-term view.

The temptation to do otherwise is obvious in our political discourse.

Gov. Mike Dunleavy is caught up in the recent surge in stock prices that has pushed the value of the fund to a record high, up by $7 billion in the last three months. He is thinking not of the next generation, but of the next election.

Dunleavy, who dreams of getting re-elected in a year-and-a-half, hopes to win that popularity contest the same way he won in 2018—attaching himself to the popular notion of bigger dividends and no new taxes.

He got away with his fiscal fantasy tour because Alaska’s news organizations, displaying a lack of curiosity, simply quoted whatever he said and did not examine his claims. He kept claiming that the state had 2,000 funded but unfilled jobs, but no Alaska news organization ever bothered to mention that it was a figment of his imagination.

Dunleavy and his underlings—Revenue Commissioner Lucinda Mahoney and her assistant, Mike Barnhill—are now saying with confidence that the Permanent Fund has become a perpetual revenue machine, big enough to do all things for all people. It will never stop growing, endlessly churning out billions for dividends and paying for state government through the second edition of the Dunleavy administration.

Dunleavy and Co. are also saying that oil prices can only go up from here, so there is no need for a broad-based tax.

This is the same claim that Dunleavy made in 2018.

It’s a mindset built on imaginary money. It features two enormous risks that Dunleavy and his revenue experts are hiding from legislators and the public. The first one is obvious: Oil prices can go down. Oil price predictions are almost always wrong.

The second risk is that the breathtaking rise in the value of the Permanent Fund has now been adopted as the Dunleavy starting point for future growth projections. This has a large impact on charts showing imaginary revenues even five years in the future.

There is no allowance that some of the Permanent Fund’s explosive growth may not last. There is no allowance for risk. There is no admission that bad things can happen—such as the 18 days in 2020 when the Permanent Fund lost $8.5 billion,

The administration has chosen a deceptive and reckless approach that puts the Dunleavy re-election campaign above all else. They say the state can afford to overdraw the Permanent Fund because what goes up must stay up.

When a stock market correction happens and when the next recessions arrives, the perpetual revenue machine will seize up and hundreds of millions in future imaginary earnings will vanish.

Over the next decade the predictions for the possible percent of market value withdrawals are billions higher if the starting Permanent Fund value point is $80 billion, the record high recorded May 28, as opposed to a starting point of $65 billion, reached last July.

The Dunleavy administration says that thanks to the current high value of the Permanent Fund and its future growth of more than 6 percent a year, the state will have nearly $700 million more annual revenue by 2027 to pay for bigger dividends and avoid new taxes.

Plus, the Permanent Fund will have a value of $90.2 billion in 2030, according to Dunleavy, Mahoney and Barnhill.

It might happen. It might not. In April, the Permanent Fund corporation predicted that the 2030 value of the fund would be $82 billion. It might happen. It might not.

It’s a dangerous illusion for anyone to claim that a sustainable fiscal plan consists of praying for higher Permanent Fund earnings, higher oil prices and unidentified spending cuts or taxes.

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