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PFD Research Enters Fifth Phase

by | Dec 6, 2021 | Featured, Government, News, Science

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Since earnings from the Permanent Fund have been spent on state government in recent years, research into effects of the fund’s annual dividends has entered a new phase. At a forum marking the 60th anniversary of UAA’s Institute of Social and Economic research (ISER), former ISER director Scott Goldsmith described what he sees as a fifth phase, the latest response to changing attitudes about the Permanent Fund Dividend (PFD), as the program has become entrenched in Alaska’s society and politics.

The Five Phases

The first phase, as Goldsmith sees it, began with the distribution of the first $1,000 checks in 1982. ISER, created by an act of the state legislature in 1961, set out to answer questions raised by opponents of creating the dividend program: would PFD recipients waste the money? Would they stop working? The first studies, published in 1984, determined that Alaskans largely spent the annual windfall on regular expenses or paying down debts, and the cash infusion tended to generate more jobs, not the opposite.

The second phase of research was a response to the oil price crash of the mid-‘80s, when policymakers needed information on fiscal alternatives. At the time, Goldsmith says indications were that cutting PFDs would cause more harm than a tax. The fiscal crisis ended without any broad-based taxes, but the economic dependence on PFDs led to what Goldsmith calls the third phase of research. For the next decade or more, ISER was reluctant to study the PFD, except for peripheral questions such as whether payments could be monthly instead of a yearly lump sum.

The fourth phase began relatively recently, with worldwide interest in the concept of universal basic income (UBI). Alaska and its PFD are the closest real-world example, ISER researcher Brett Watson told the anniversary forum (though he points out that, unlike a UBI, PFDs are not intended to sustain household expenses). The UBI debate inspired studies beyond economic decision making into social effects, such as crime or health. For example, a 2015 study by South Korean researchers explored the correlation between PFDs and birth weight.

PFD research with a social, rather than purely economic, focus continues, but Goldsmith says new concerns about the use of the Permanent Fund are driving a new, fifth phase.

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When did the fifth phase of ISER’s PFD research begin? Perhaps 2016, the first time that dividends were reduced from the traditional formula (based on a five-year rolling average of earnings) by then-Governor Bill Walker’s veto. Or perhaps 2018, when the legislature voted to begin drawing on Permanent Fund earnings to pay for state expenses, allowing up to 5 percent of the fund’s $80 billion market value to be spent yearly, split between dividends and the operating budget. Certainly something changed this year, when the budget deficit exceeded the percentage cap and lawmakers chose to spend an extra $1.5 billion to afford dividends.

As a professor emeritus, Goldsmith no longer directs research at ISER, but he does have some suggestions for questions to investigate. First, “What role can and should dividends play in fostering the economic well-being of Alaska households? Is the dividend a public policy tool in addition to simply being a cash distribution?” Goldsmith sees UBI-related studies as having some bearing on those answers, which would also distinguish Phase Five from the likewise crisis-driven research of Phase Two.

Second, researchers can discover if dividends have a certain size threshold below which effects are insignificant. As Goldsmith puts it: “Would a large enough dividend have impacts, positive or negative, that do not show up with a smaller dividend?”

Third, “Does the future of the [Permanent Fund] depend on the future of the dividend?” The answer is a matter of public opinion, which also suits ISER’s mission. The institute’s current interim director, Diane Hirshberg, says of ISER’s role, “We need to continue modeling the impact of the PFD and different options the legislature is discussing. I’m hoping that the [anniversary forum] will spur interest in seeking out new research to inform the debates in Juneau.”

No Easy Answers

Counting the earnings from the Permanent Fund, state government has more than enough money to cover its expenses in most years—but spending those earnings would deprive future generations of the Fund’s investment returns.

Gunnar Knapp

The question for policymakers becomes whether to lock the 5 percent limit into the Alaska constitution and seek extra revenues elsewhere. The question for ISER researchers is what effect that will have on Alaska’s economy and people, as well as legal questions about how to change the structure of the state’s largest savings account.

For economics professor Matt Berman, the debate centers on a philosophical question: “Is it owned by the citizens or is it owned by the State? I think many people out in Alaska, and I think I’m probably one of them, believe that the Permanent Fund should be owned by the citizens. So the dividend is what we get basically as stockholders, and it’s not the state’s right to take it away from us.”

Goldsmith concurs. “Maybe the dividend should be in the constitution to remind people that that’s what the original notion of the Permanent Fund and the [PFD] were,” although the economist concedes he doesn’t know what the legal language should look like.

Another former ISER director, Gunnar Knapp, sounds more cautious. “Arguments for dividends when we had enormous oil income may not necessarily still apply, because these circumstances are different,” he says. He finds some agreement with former lieutenant governor Fran Ulmer, who among her many other roles is also a former ISER director and, notably, helped draft PFD legislation in the ‘70s. “You need a flexible document so that legislators and governors can actually make good decisions based on the facts of that time,” Ulmer says. “The facts of the times in the 1970s and early ‘80s, as Gunnar points out, [are] radically different than the times we live in now.” It’s up to Alaskans to decide which economic tradeoffs they prefer, she says, and ISER can help inform people of their options and measure their preferences.

Research Continues

Political interest in Universal Basic Income, for example in the platform of 2020 presidential candidate Andrew Yang, put Alaska’s PFD under a national, and even global, microscope.

Brett Watson | UAA ISER

For Goldsmith, the choice boils down to this: “We can get by without a broad-based tax if we eliminate the dividend, or we can keep the dividend but then we will need a broad-based tax. The alternatives have very different implications for the distribution of income, and, as recent research suggests, for household well-being.”

ISER continues to generate data about the correlation between PFDs and well-being. At the anniversary forum, Assistant Professor of Healthcare Economics Mary Kopriva described two of her current projects. One examines whether giving pregnant women financial support affects maternal health. Specifically, “Looking at how the timing of the PFD—if women get the PFD during their first, second, or third trimester versus not getting a PFD at all during their pregnancy—how that impacts two dimensions of maternal health,” namely pregnancy-related health concerns and maternal morbidities at the time of birth, Kopriva explains.

Kopriva is also studying the PFD and intimate partner violence. “We don’t know a lot about how these types of cash transfer programs impact intimate partner violence rates,” she says. “There’s these two opposing forces: on the one hand, it’s possible that this money could provide financial independence, so that victims are able to leave abusive partners; on the other hand, though, this could lead to an increase in violence if abusers use violence to gain control over this new resource.”

Kopriva would also like to see further research into whether PFDs affect healthcare usage rates, risky health behaviors, prices and wages, education access, and population migration.

ISER also continues social and economic research into matters entirely unrelated to the Permanent Fund or dividends. But as long as those topics are at the heart of seemingly irresolvable political debates, the institute is ready to supply the solid data needed for informed decisions and to provide a forum for hard questions to be asked.

A recording of the anniversary forum is available on the ISER website.

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