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Universal Basic Income and the Alaska Dumpster Fire
Every now and then a think piece shows up from conservative writers considering whether providing a Universal Basic Income (UBI), or a fixed payment to everyone, no strings attached, might be a positive alternative to Great Society-type programs.
I urge all of those considering these arguments to take a look at the cautionary tale of Alaska. As a condition of statehood, Alaska has no private oil and gas rights owned by the state, and the state invested the royalties in a Permanent Fund. Eventually, the money flowing in was so much more than state expenses that the state income tax was rescinded, and a dividend on the fund earnings are paid every year to every resident (depicted here in the Simpsons movie). This Permanent Fund Dividend, or the PFD, is essentially a UBI. The Permanent Fund has ~$60 billion in it, and historically the PFD has been in the $1-2K range. With the natural gas boom going on in the contiguous U.S., royalties on current oil production in Alaska plummeted around 5 years ago, so the previous governor (a left-leaning independent) reduced the dividend, expanded Medicaid by fiat, dipped in to the state’s savings to make the state budget, and proposed reinstating the income tax. Last year, the current Republican governor was elected promising to restore the full dividend (and more), cut nothing of significance, and have no new taxes.
The reality as governor is that he intends to make good on two of three of these promises. So, with a set of 182 line-item vetoes announced July 1, he removed 40% of the state university system’s appropriation, gutted virtually every “safety net” program, and reduced a wide range of other appropriations (overview here with a link to the full list). As someone who lives three miles from the state’s flagship university on a dirt road with no water, sewer or trash pickup, and internet access only available through my cell phone; in a state with no rail connection to North America and no road connection to half of its land area, I think the state government is already pretty lean. Inflation and population-adjusted budgets have been flat for decades.
After the vetoes, the governor called the legislature into a special session for performing the purpose of setting the amount of the PFD. The governor wants it set at $3K in accordance with the traditional way it is calculated (based on Fund earnings). Rather than call the special session in the legislative chambers in the state capitol, the governor called the special session 600 miles away in a middle-school gym in his home town. In the only bright spot of the week, Alaskans got a history lesson on the Declaration of Independence, as commentators noted that convening the legislature in ridiculous places was in the list of grievances against King George.
Thirty-eight legislators, a coalition of all Democrats and Independents, and 40 percent of Republicans would have nothing to do with the middle school and convened in the capitol. They voted 37-1 to override the vetoes, but success requires 45 votes. Twenty-two legislators, all Republicans, showed up at the gym and pretended to look like serious legislators while speechifying with basketball goals in the background; the governor provided no security so at one point a group of chanting kooks took over the gym. The group of tweny-two bills themselves as “Conservatives” and supports prioritization of the PFD over any and all government functions and is adamantly opposed to any form of new tax revenue. Since the Democrats and media love highlighting hypocrisy in Republicans, the only people opposed to describing this group as conservative are the fourth or so of the electorate who are, you know, actual conservatives.
The likely end game here is that the state will turn solidly Blue, perhaps permanently, with our conservative U.S. Senator, Dan Sullivan, coming up for re-election next year. There seems to be a hard ceiling of about half of the Republican party willing to go along with labeling themselves “Conservatives” while sticking their hand out to government screaming for unearned cash, the Democrats want government services expanded not contracted, and the Independents favor a status quo on services and some combination of reduced PFD and modest new taxes.
In summary, the veto override failed, Alaska has $60 billion in the bank, and on Monday the university system will likely declare financial exigency (the university version of bankruptcy). The likely outcome is that ~1/3 of the UA system will be laid off, and tuition will probably be doubled. In Fairbanks, the state’s second-largest city, UAF drives about half of the economy (an army base drives the rest), so economic collapse is predicted here. As someone who moved here from Texas some years ago, my observations of Alaska culture are that the PFD has been a major factor in precipitating the societal rot that has gotten the state to this point.
Published in Politics
a) Have PFD payments succeeded in keeping people off welfare rolls, as promoters of UBI claim it would do?
b) How much of the budget squeeze is the result of the expansion of Medicaid? How much of the Medicaid expansion was paid for by reducing PFD payments?
I can’t think of a way to answer part a). I can tell you that the PFD shows up as regular income on everyone’s federal income taxes. This, by the way, means that for upper middle-class types like me that 28% of the state’s PFD goes directly to the federal government. With respect to part b), I am not well enough versed on the ins and outs of Medicaid funding to give you a breakout of how much the state’s Medicaid funding had to increase immediately above previously existing levels. That information could probably be deduced, but I don’t know of an existing place where it is presented that way.
Tragic. Good Lord. Why do politicians want to commit suicide like this. I wonder what he thought the upside would be?
The governor and his followers firmly believe that they are “right-sizing” government and will stimulate economic growth by maximizing the amount of money that Alaskans have in their pocket. The rationalization for the PFD is that it is not a handout, but earned money that was denied by the collectivization of oil rights. The vision seems to be that if it weren’t for that, Alaskans would all be modern-day Jed Clampetts. Most people making this argument don’t seem to have much understanding of how mineral rights work in other major oil-producing states.
I wrote an entire post trying to puzzle out what the heck Obama and his crew thought the upside was to coddling Iran and giving them that terrible deal. I think I understand it but as in this case I can’t figure out why the people believe their actions like this have an upside. Even if they were right on principles these kind of tactics are crazy, why the Gym for the Lord’s sake?! Insanity.
So it goes with politics in modern day America.
Most universities have too many staff members these days. Does UAF? Are the representatives out of touch with voters, or will the voters be OK with these choices?
It seems to me that I remember a grain subsidy in ancient Rome. It didn’t work out terribly well, either.
By law here, the UA system gets a single funding number, and a Governor-appointed Board of Regents (terms extend multiple years, so this governor has yet to appoint any board members) makes the decisions on where the money goes, directing the UA administration. The UA system has received 5-10% cuts annually for the previous four years already, with most of that being taken out of administration and staff; so, a lot of consolidation already. As the governor has pursued these cuts, his popularity has plummeted. Polling in Alaska is notoriously difficult, but what exists showed a ten-point drop in favorability the day after his vetoes were announced, and he is now 33 points underwater in favorable/unfavorable rating (24/57). There have been multi-thousand person protests against the vetoes, and public opinion seems strongly against the governor. The university is not rabidly leftist, but definitely more left-leaning than the general population, and that has certainly fed into things; for whatever reason, the governor has made it clear that he absolutely hates the university despite getting his degree from it.
A number of years ago, work took me to Alaska several times a year. I can toss my two-cents in and affirm what @farnorthprofessor is saying. It is one of the talking point I use to argue against UBI proposals.
Has this collectivization ever been challenged in court? It seems ludicrous Alaska can keep holding onto rights which should be in the hands of property owners . . .
Government crack. It kills.
The stupid party
There’s a lot of qualifications in that statement. State government is expensive here, with expenses maybe 2-3 times the rate per person in the lower forty-eight. And many of the programs we’re talking about came into being during the pipeline boom when the state government was awash in money and the budgeting consisted of each house of the legislature putting its programs forward along with the governor’s programs with no scrutiny outside of those houses or by the governor. It was oil money that made our economy dependent on state government, and we’re actually not alone. World wide, you see the same problem in countries and states that have become dependent on oil.
And if you’re referring to Fairbanks as to where you live, you’re living where your living by choice as are most people who live away from the City of Fairbanks proper. Fairbanks proper does have garbage pickup, water, and high speed residential internet.
And there are some mighty fine houses, some of them mansions, on many of those dirt roads 3 miles outside. A lot of those neighborhoods could get those services if they wanted them, but they actually choose not to have a local government that could provide them. And I don’t blame them, but it’s still a choice.
While I was never a member of the faculty, I did work for the University of Alaska Fairbanks campus, and noted that after it broke up into 3 main campuses (before my time there) they set up a big and wasteful statewide administration that produces no credit hours teaching students. I also note that UA mimics lower 48 colleges in the way they administer Title IX. Perhaps it has become a cow we can no longer afford.
I do go back and forth on the PFD. One thing the PFD did do is it limited the amount of oil money the state government could grab. But I do see the disadvantages too and agree with your conclusions on dependency.
When Alaska’s constitution was drafted and approved, it was a blue state (before the term blue and red state were coined). That constitution gave the governor way too much power, and we see that with veto overrides that require 3/4’s of a joint session of the full legislature. Not 3/4’s of the members present, but 3/4’s of all members regardless of how many are present.
And no other governor has told the legislature where to meet, regardless whether he has the power to.
I do agree that the governor should be cutting government here. But there should also be more of a brake on his powers.
One lesson I hope we take from all of this is there should be some constitutional changes.
The reason the special session was called in Wasilla was because most of the legislators live within 50 miles of Wasilla, and it marks a central location on the road system (as opposed to Juneau where the only way in is by air) so the majority of Alaskans would have access to the process. The main reason the Democrats and squishy Republicans broke the law, and refused to attend was because by commuting the 40 minutes to Wasilla they wouldn’t get their $300/day per diem. It was all about their own personal pay, which they also increased this year by the way.
The PFD is hardly welfare, it’s a dividend, on profits from resources owned by us, Alaskans.
You choose to live in the Bush? There are plenty of jobs on the road system. The University system has been bloated with waste for decades. I used to work for them too. They have a ridiculous administration budget.
The budget cuts are exactly what a conservative should applaud. And I applaud Gov. Dunleavy. The legislature is trumping up Democrat-style the-world-is-falling rhetoric in line with what one always sees with the left. Don’t fall for it.
No, the PFD is more of a boost to the local economy than an income supplement. It’s typically around $1000 each year. The lowest I recall was $800, the largest was when Palin was governor when we got close to $3000 in two payouts, one the regular PFD, and a second was a additional payout due to an unprecedented surplus that year.
Most families use their PFD on home repairs, toys, vacation packages…basically it goes right back into the local economy. In Bush AK it’s a different situation, but everything is different in the Bush so you can’t really correlate it.
My kids PFD’s go into their college savings accounts, or we use them to pay for things like medical expenses. If someone is on Quest (State welfare) they get over $2000 each month.
Really?
I doubt that was the reason. And he was putting them in a high school gym with no security and where demonstrators could harass them.
If you want to go that route about base motives, there’s plenty to go around.
If Alaskans really want to move the capital, then lets have another referendum. There have been two, and they have gone both ways.
Let’s not have a governor decide it on a whim.
$1500 to sit around and do nothing, and be shielded from the public while doing it. Yeah, who wouldn’t prefer that?
The protesters were professional protesters brought in from the lower 48, and few in number. There were Wasilla police on site who decided they were not a threat (my kids see tougher crowds at the gas station) and stood down. Personally I would have arrested them, but that’s what they wanted, a headline.
There are a lot of powerful interests who want the capital in Juneau, not the least of which are the lobbyists who get the legislature all to themselves, and Alaska Airlines. If Juneau didn’t have the government, it would become Homer in about a week.
My short Googling of this indicates that there is plenty of precedent for the state to collectively own mineral rights. For example, I’m not an expert in oil and gas law, but I believe every state collectively owns the oil and gas rights on the land immediately offshore (out to 3 miles, I think). If oil rights had started out privately owned here and then been seized later, then I think that could be legally challenged.
The PFD is not welfare if the term “welfare” implies something that requires means testing. The PFD is definitely a government handout. I did nothing to earn it. If mineral rights were privatized, then the property that I, and pretty much every other individual Alaskan owns, would pay no royalties; mineral rights for properties that are oil-producing or likely to be oil producing would cost money, lots and lots of money. It seems to me that you are arguing that the source of government revenue is relevant to how government expenditures are labeled; I disagree with this argument.
As I noted above, the UA system had 5-10% cuts annually for the past four years, and those were heavily targeted towards the statewide administration. If you are comfortable with a university that is much worse than it is now, then so be it. If you think that a 40% cut to its appropriation is going to result in a product of similar quality to what exists now, then I think that you are basically appealing to a deus ex machina.
Yes, this is all true, and I have a house on the trail system with an attached two-car garage, so pretty much a mansion. My point was that in the 15 years that I have been here, I have not seen out-of-control government spending. There’s no high-speed rail, we got rid of the governor’s private jet, etc.
It’s a 17% cut from last years operating expenses, so yeah, you’ll have to cut the plans for spending the extra 24% increase you thought you’d have because you can’t afford it. So a lot of research projects will be scrapped, but much of the actual instruction is online, many of the exams are proctored, and many of the instructors in the system are not worth their paycheck anyway.
Texas has a lot of state land that is oil and gas producing, but that money goes into the Permanent University Fund (PUF) that goes towards funding both the Texas A&M and UT systems, and the state also created the ‘Rainy Day Fund’ several years ago, where some state payments by oil & gas companies are kept in order to have money to avoid major cuts in programs during periods when oil & gas prices are down. And local taxing entities are warned not to overextend themselves on long-term recurring payments on things like salaries and benefits based on higher energy valuations, because those valuations could come down, and then you’re faces with laying off people or severely reducing services.
Alaska’s direct payments to local residents falls under the latter situation. It may have taken a while for the income to fall, but the state set up a continuing payment system akin to Universal Basic Income where the conceit was the oil payments would remain in place forever, and the publics’ overall mindset has come to see those payments as a right. It puts the state’s leadership in the same position the Saudis find themselves in, where oil-based payments to the public are used to quell unrest, with the Medicaid expansion adding to the problem of people expecting more and more free stuff.
The Republicans who have decided the payments are the most important thing to preserve simply are trying to kick the can down the road by bribing the public with funds that aren’t there, and hoping the cuts will affect few enough people they can sneak by come election time. In no way do they deal with the actual problem of basing a permanent expenditure on an income stream that can be wildly variable (as anyone in any other energy-productions parts of the U.S. could have told them).
Good bi partisan lessons here. Also insight into why Federal government welfare and subsidies are mistaken. It can’t end well. Some states, probably from lack of easy income, get it right.
You know, it’s typical for citizens of any state or country to have contempt for their legislatures. I get that.
But it’s a much different thing when the executive is allowed to treat them with contempt. The governor put them in a situation where they could be physically intimidated. In a high school gym.
If the citizens of a state want to require that legislators meet in humble surroundings, I’m fine with that. But that should not be within the perview of the governor. The legislature should be a co-equal branch, and not the governor’s servant. The people’s servant, yes. But not the governor’s.
Most constitutions leave the meeting place to the legislature to determine. Whatever the Alaska’s state law or constitution says, it goes against the American way of separation of powers.
This is wrong. I’m not against the governor’s vetos. But this has turned me against him.
See my previous post on contempt for legislatures.
In Juneau the security they have works for them as is appropriate. In Wasilla? They report to the mayor. Not good.
When I was living in Alaska in 1985 I was working at a computer store (Empire Electronics). Loved the people from The Bush. They’d come into town about once every 6 months with shopping lists in hand and just drive from store to store buying stuff. World’s easiest sale. They’d walk in, tell you exactly what they wanted, pay, and tell you that they’d be back in three hours to pick it up – they had other stores to go to and didn’t want to waste time waiting around while you gathered the stuff together.
It’s not a welfare or subsidy. It’s a dividend off the earnings from citizen owned oil revenue. We the people own the resources, I’m sorry if other states feel the government owns it, but I don’t live there.
The amount is calculated off of a six year average from the profit; some years it’s small, the amount could be almost nothing. While the revenue is high (like now) the Democrats want to change the rules because they’d love that money to grow government. Dunleavy is halting that, telling them to live within their means and to stop confiscating the dividends from the people who know how to spend it better.
The funds are there, that’s why they’ve been confiscating it for the past three years under Walker (caping the payment amount which would have been almost double what they paid out last year) They don’t want to cut government, or the bloated admin-heavy, multi-campus university system so they’ve been raiding the Permanent Fund instead.
What you’ve described is exactly what the previous administration did. And he lost in a landslide.
I think we are getting much to specific here.
The PFD/UBI comparison is not exact, but the similarities point up specific problems in creating a UBI.