Permanent Fund Dividend
Background: Fiscal Conditions in 2016
In 2016 the Walker administration faced a $3.2 billion deficit. The Statutory Budget Reserve had been depleted, and the Constitutional Budget Reserve (CBR) that had once held approximately $16 billion was already down to $10 billion, an amount projected to last 8–10 years depending on the level of additional reductions.
So in June 2016 Governor Walker formed a budget review team, including Governor Walker, commissioners, and senior staff, to review the budget line by line, ultimately identifying savings that reduced the budget by $650 million.
At that point, one major unresolved item remained: whether to fund the statutory Permanent Fund Dividend (PFD) of $2,052 per person at a cost of $1.4 billion, or reduce the dividend to preserve reserves and slow the drawdown of the CBR.
Decision Framework
The administration evaluated:
Legislative considerations, including the likelihood of a veto if the dividend were reduced.
Legal considerations, including the likelihood of litigation if the dividend were reduced.
Fiscal sustainability, given that reserves were being consumed at an unsustainable rate.
Impact on Alaska’s economy, particularly the longterm consequences of continued structural deficits.
Impact on Alaskans, who had come to rely on the annual dividend payment.
The administration had previously proposed a comprehensive fiscal plan to close most of the deficit, but it had not gained traction in the Legislature. Many policymakers continued to suggest that the deficit could be resolved through incremental cuts, despite clear evidence that the scale of the gap made such an approach insufficient.
Action Taken
After weighing the options, Governor Walker reduced the dividend to $1,022—its longterm historical average. This action preserved roughly $700 million in the CBR and slowed the rate of reserve depletion. It was the only year in which the governor reduced the dividend; in subsequent years, the Legislature enacted budgets that reflected the fiscal reality that statutory formula dividends were no longer affordable under existing revenue levels.
Historical Context of the Dividend
Former Governor Jay Hammond articulated the original purpose of the dividend program as a mechanism to protect the Permanent Fund from legislative overspending by creating a constituency with a vested interest in safeguarding the fund’s earnings. As Hammond put it, the dividend was intended to “pit collective greed against selective greed.” (Diapering the Devil)
The dividend was not designed, as many have come to believe, as compensation for lost mineral rights. It was simply a political tool to protect the fund during periods of high oil revenue. Over time, however, the statutory formula has taken on an unwarranted sense of permanence, despite being a product of legislative compromise rather than constitutional mandate.
Current Fiscal Conditions
A decade after the 2016 decision:
Nearly all of the $16 billion in reserves have been exhausted.
Oil revenues are no longer sufficient to fund government services.
The Permanent Fund is now being used for its original intended purpose: stabilizing the budget when oil revenues decline.
And, the annual dividend debate continues to dominate the budget process, often overshadowing core service needs and longterm fiscal planning.
The hard truth is that public expectations around the dividend have hardened, even as the fiscal capacity to pay it under the statutory formula has disappeared.
Policy Proposal
To resolve the longstanding structural conflict between the dividend and the State’s fiscal capacity, Walker-Hoffbeck proposes the following to be submitted for legislative approval:
Onetime final dividend payment of $10,000 to all Alaskans eligible for the 2027 PFD.
Payment would have to occur in 2027 to prevent inmigration for the purpose of harvesting a dividend.
Sunset and repeal of the statutory dividend formula following the issuance of the onetime payment.
In addition, we will
Conduct a Public advisory survey via the 2027 PFD application process, allowing applicants to indicate on their 2027 dividend application support or opposition to the onetime $10,000 payment and the termination of the dividend program.
Forward the results of the advisory survey to the legislature to be used in their deliberative process.
Fiscal Impact
Estimated cost: $6.5 billion from the Earnings Reserve Account (ERA).
Estimated reduction in the POMV draw: $325 million.
The withdrawal would place temporary stress on the ERA but would not jeopardize the corpus.
Eliminating future dividend obligations would allow the Permanent Fund to eventually recover and ultimately exceed the value it would reach under the current dividend structure.
Conclusion
The dividend has fulfilled its original purpose of protecting the Permanent Fund. Given current fiscal realities, continuing the statutory formula is no longer sustainable. A structured, onetime transition payment paired with statutory repeal provides a clear, orderly path forward and allows the Legislature to realign the State’s fiscal framework with available revenues.