An oil check to keep Alaskans warm

Marketplace Staff Dec 26, 2008

An oil check to keep Alaskans warm

Marketplace Staff Dec 26, 2008


Tess Vigeland: Winter in Alaska is in full . . . brrrrrr. Snow on the ground, parkas on the kids, and it is expensive to live there. Food, clothing, everything costs more because of the extra effort required to get it to consumers. To take the chill off, Alaskans don’t pay sales or income tax. And every year, many residents get a check from the dividends of oil drilling. This year’s check was double the usual amount. Happy Holidays. Emily Schwing reports from Homer, Alaska.

Emily Schwing: It’s what Alaskans call the PFD, or Permanent Fund Dividend. This year, qualifying residents received over $3,000 from the State of Alaska. The checks were cut in September, a month earlier than usual, because of a one-time $1,200 rebate to defray the rising cost of heating oil. Of course, the state’s natural abundance of oil is why the dividend exists in the first place.

Michael Burns is the CEO of the Permanent Fund Corporation:

Michael Burns: Probably, that’s about $13.5 billion that have been deposited into the fund from oil royalties.

The fund started in the 1970’s, after Alaskans blamed the state for a misuse of $900 million from oil lease sales. But Burns says it would be a mistake to think of today’s dividend as purely “oil money.” That’s because the Permanent Fund has tripled in value due to the stock market.

Burns: It’s much more important what happens on Wall Street than what actually happens on the North Slope.

Despite Wall Street’s recent downturn, Burns estimates the fund is worth more than $30 billion.

But before you turn green with envy, Gunnar Knapp provides a little perspective. He’s an Economics Professor at the University of Alaska, Anchorage:

Gunnar Knapp: I think a lot of Alaskans would say, “Hey listen, you couldn’t pay me enough for what it’s like by the time you get to the 19th snowstorm of the year in March and, you know, the darkness and so on.”

Knapp is a father of three. That means his family’s PFD payment will exceed $16,000 this year.

Knapp” It in effect becomes an increase in Alaskans’ income — a 4 [percent] or 5 percent increase in their income, and it tends to go for bigger ticket things that people have trouble putting together.

Knapp and his wife plan to use the money to pay down credit cards and other debt. But what are other Alaskans buying with their PFD? I asked some shoppers outside a local drug and hardware store in Homer:

Female Shopper 1: We’re gonna see if we can’t get a, like, a 37-inch wide screen TV — haha — we haven’t had before.

Male Shopper: Well for fuel, and basically to buy other things such as a new vehicle.

Female Shopper 2: I bought an elliptical trainer and a tank full of propane.

Outside the store, only Bob Robinson said he wished the money would stop coming.

Bob Robinson: My problem with a handout is, is there’s something wrong, inherently wrong with government, when they have to have handouts like this. Something is not working.

Alaska does have its fair share of problems with rural poverty and lagging infrastructure. Professor Knapp says that’s sparked a fierce debate about the best use of Permanent Fund money.

Knapp: You know my wife, who’s a school teacher, says, “When the dividend checks come out, that’s the week poor kids come to school with new shoes.”

But critics say the money should go toward essential public projects. Knapp also says Alaskan shouldn’t rely on this dividend as a long-term source of income.

Knapp: And I think the larger the dividend checks and the more people hear about them, then the more we’re going to run into a argument from Congress where if you need it, you’re rich, pay for it yourself.

And that could contradict the purpose of the PFD, which is to keep some of Alaska’s oil profits out of the hands of state lawmakers.

In Homer, Alaska, I’m Emily Schwing for Marketplace Money.

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