UBI — Lessons from the Alaska Permanent Fund Dividend Program
The Alaska Permanent Fund Dividend program provides insights on how a Universal Basic Income program would work and its impacts. Alaskan residents, including children, have received an annual check for up to $2,072 since 1982. The Dividend program is very popular across the entire political spectrum.
630,000 Alaska residents, approximately 26% that were children, received a $ 1,600 dividend check in 2018, meaning that more than $1 billion was distributed. This annual injection of cash has a substantial economic impact and stimulus in the Alaska economy.
Alaska’s Odyssey to the Permanent Fund Dividend
In 1975 the Alaska Legislature foresaw that Alaska would be transformed from a poor rural state to a wealthy oil producer with completion of the 800-mile Trans-Alaska Pipeline in 1977. Hoping to prevent overheating of the economy and build a stable long-term future for Alaska, the Legislature created the Alaska Permanent Fund funded by 25 percent of the State of Alaska’s royalties from oil and mineral development. The Fund was given permanence by passage of a constitutional amendment in 1976, which required a two-thirds vote of the House and Senate and ratification by the voters.
By 1980, billions were rolling into Alaska government coffers and the Permanent Fund. Debates raged over how to use Alaska’s new oil wealth, and the options discussed included massive public works projects and a development bank.
Governor Jay Hammond and legislators eventually decided to create a “dividend” program so that Alaskan voters would pay attention to and protect the Permanent Fund. An additional purpose was to make sure the average citizen got some benefit from oil wealth. With Alaska’s huge landscape many Alaskan citizens and businesses had no direct economic benefit from the oil construction boom, the new jobs it created, and the lower-cost fuels along the pipeline corridor.
Alaskan leaders did not have any relevant models to learn from when they devised the Permanent Fund Dividend. At that time, it was a unique program with very specific Alaska centric goals.
The Permanent Fund Dividend program was finally agreed upon. It was designed to be funded by a portion of the investment income or earnings of the Permanent Fund. Prompted by Hammond’s strong preferences, the Legislature created in 1980 a Dividend program in which Alaskans who had lived in the state longer would get substantially larger amounts each year than new residents. The program the Legislature adopted in 1980 was immediately hung up in court, however, and no payments were made through the initial formula.
While the litigation was pending in the U.S. Supreme Court, the Legislature adopted a backstop Dividend program that provided for equal annual payments for all Alaska residents. When the U.S. Supreme Court ruled 11 days after the backstop bill passed the Legislature that the original program was unconstitutional, Gov. Hammond signed the backstop bill and the first Dividends were paid in the summer of 1982. That first Dividend in 1982 was $1,000, as the Legislature appropriated funding to jumpstart the program and get citizens’ attention. Since that time, Dividends have been paid from the earnings of the Permanent Fund and have fluctuated based on the investment returns.
Criticisms, Fears and Impacts
There were many fears and criticisms by opponents of the Dividend program:
* People will lose their incentive to work.
* Alaska will be overrun by migrants.
* Children shouldn’t get Dividends as irresponsible parents will waste the funds and children will not benefit.
* The oil industry argued Dividends would cause a never-ending cycle of increased oil taxes to increase cash distributions to voters.
None of the fears have proven out. Several studies have shown that the Dividend program has not had a negative influence on the labor market. Contrary to worries expressed before the program started, Permanent Fund Dividends have not caused Alaska to be overwhelmed by a flood of check-seekers, and in fact more people have left Alaska than moved in every year since 2013.
Surveys have found a high percentage of Alaskans save their children’s Dividends, set up college funds, or pay down debt. In 1990, the Legislature authorized applicants to contribute 50 percent of their Dividends to a college savings account.
The Dividend program has proven to have many benefits for individual Alaskans, the economy, and society at large. A 2006 analysis of inequality in our 50 states found Alaska had greatly improved since 1980:
“In the early 1980s, Alaska had the greatest income equality of any state, measured by the ratio of average income of the top 20 percent of families compared to the lowest 20 percent — 6.6. By the early 2000s Alaska had fallen to 43rd place at 5.8 while the U.S. average had increased from 5.5 to 7.3.”
Since 1980, the poverty rate has dropped in Alaska, especially amongst Alaska Natives. A significant percentage of Alaska Natives live in historical remote villages that have few year-round good paying jobs. Many Natives maintain their lifestyle with seasonal jobs and traditional subsistence activities of fishing, hunting, and berry-picking. The Dividend is a very important cash injection to their economy and lifestyle.
Critics of the Dividend program point out that wealthy people don’t need their Dividend check and this unnecessarily creates an expensive program. The flipside of the universal nature of the Alaska program is that it has widespread political support across all demographics and political parties. Any politician messing with the Dividend or proposing to raid the Permanent Fund itself must be prepared for intense public scrutiny and backlash.
The Debate Over the Future of the Dividend
With the decline of Alaska oil production by 75 percent from the peak and oil prices that are not high enough to compensate, the State of Alaska’s oil revenues have fallen dramatically since 2012. Starting in 2016, the Alaska Legislature and Governor have reduced Dividends from what the payments would have been under a formula still on the books. These reductions have been highly controversial.
Former State Sen. Mike Dunleavy won the Governor’s race in 2018 promising to restore the cutbacks and pay a Dividend of $6,700 in the fall of 2019. Once in office, he proposed a $3,000 Dividend for 2019 while waiting for future years to pay the “make-up” Dividends, and advocated for heavy cuts to education, health care, and transportation. Rather than cut the Dividend or slash funding for the basics of government, many Alaskans and elected officials are advocating re-instituting a personal income tax that was repealed in 1980. There is also support for re-examining oil taxes to see if the State of Alaska can collect more oil revenues to pay for essential services.
Lessons for UBI
The biggest lesson is that many fears at the time of formation are hypothetical and turnout to be false. Over time the Alaska Dividend has gained broad support from citizens of all political stripes. The Alaska Dividend was competently implemented and administered, avoided corruption, evolved to meet new needs and not prematurely terminated — all features that increased support and avoided controversy. These are important lessons for those who design, implement and administer Basic Income programs.
