By Naomi Klouda
The story of how the Permanent Fund Dividend came to be an annual event has been repeated often, as both an ideology about public ownership and an example of policy that extolls the good ways government can share resource wealth with residents.
Alaska Gov. Jay Hammond from 1974-1982, the architect of the fund and a prolific writer during his life, told the story many times throughout the years, so that perhaps many believe they know the story well. Yet, sometimes we hear often-told stories in a new way and realize in humbleness we didn’t know that story so well after all.
This might be the case for many readers and certainly new generations of young people. Now, six years after Hammond’s death, we have a new opportunity to read Hammond’s words in the recent publishing of a manuscript he had worked on until the day of his death, Aug. 2, 2005. Called “Diapering The Devil: How Alaska Helped Staunch Befouling by Mismanaged Oil Wealth; a Lesson for Other Rich Nations,” the long title and short but informative book lets us hear from a favorite governor again.
Kachemak Research Institute’s Larry Smith and Pam Brodie of Homer, friends to the Hammond family, were able to publish a small run of the book that will go to all the libraries in the state. Later, a larger run can be printed. Editing was done by Lauren Stanford, Jackie Pels, Pam Brodie and Mary Maly. Lauren is the grandaughter of Jay and Bella Hammond.
The “diapering the devil” metaphor is explained in the preface. It arises from a comment by Juan Pablo Pe’rez Alfonso, a founder of OPEC, that petroleum is the “devil’s excrement.” Alfonso predicted when Venezuela became an oil producer that petroleum would bring nothing but trouble. “Waste, corruption, consumption, our public services falling apart,” he wrote. He was correct: Venezuela had earned more than $600 billion in oil revenue since the mid-1970s, but the real income per person fell by 15 percent, Hammond explains in a preface.
“So bloated were their budgets that when oil prices fell to around $10 a barrel in 1998, a number of oil producing countries were pushed to the brink of bankruptcy,” Hammond wrote.
Alaska was able to avoid Venezuela’s fate but only because it had pinned “a diaper,” so to speak, on oil’s sewage, Hammond tells us.
As governor during the biggest economic boom in Alaska’s history, the construction of the Trans-Alaska Pipeline System, Hammond oversaw the creation of the state government’s most popular, and famous program, the Alaska Permanent Fund. The fund was envisioned by Hammond in the late 1970s as a program to invest oil royalties and pay out annual dividends to state residents. He also is sometimes miscredited for abolishing the state’s income tax.
We hear directly from Hammond, however, that he never intended for income tax to be repealed. “In 1980, the legislature abolished Alaska’s income tax in what I, at the time, asserted was the most stupid thing we could do. Reduce or suspend, but don’t take it off the books completely, for it will prove almost impossible to resurrect, no matter how desperately needed.”
So why didn’t he veto the bill when it came to his desk?
“Simply because I didn’t have nerve enough to confront accusations that I had broken a commitment to permit it to become law if our bill suspending the tax was struck down by the court … For this lack of courage I apologize to all Alaskans for placing a false charge impugning my integrity ahead of their best long-term interests.”
Hammond seems eager to explain himself on a number of fronts, as if anticipating what history might get wrong. He urges Alaskans to face the fact that government is in a fiscal crisis when we continue to pay for recurrent government expenses, not with recurrent income, but with “ephemeral one-time only oil dollars.” Compounding the problem is that there are two state economies: one in the private sector and one from the public sector. Private sector does well when the population increases, but the public one does not because it means more services must be provided. Another piece of that is a further division in two public sectors: local and state government. Local growth causes a burden on the state.
As if anticipating the current discussion about tax breaks for oil production currently sought under Gov. Sean Parnell’s urging, Hammond also makes a case against giving tax incentives to those corporations that do resource development. The state constitution does hand down a mandate to manage all our resources for the maximum benefit of the people, “and in my view that means all the people, but from the very beginning that mandate has been largely ignored,” he writes. If he were here today, this is likely what he would tell a legislature struggling with Gov. Parnell’s proposal:
“Early on Alaska had imposed a one percent severance tax on oil, a modest raw fish tax, a tiny stumpage fee on timber, and a nickel-a-ton tax on coal; the rationale being that we could adjust our tax structure later after companies started to do business up here. I believe this is precisely backward. Instead we should have started out with say, a 99 percent severance tax and work our way slowly down… At that point, we would have a far better idea of what the appropriate level of taxation might be to encourage development.”
Hammond’s discussion is broad ranging. He didn’t favor statehood in 1959 and explains he was against it because he was certain Alaska couldn’t support itself. (We had not yet scented oil, he says.) He laments that villages can’t be forced to pay for their own schools due to a lack of economic opportunities in the villages: a small property tax base wouldn’t collect enough to justify the expense of collection, he said. And at times, it seems he is addressing policy makers or legislators more than the average reader. But when he gets to the chapter, “Alaska’s First Dividend Program,” there’s little doubt he is talking to all of us about his rationale for creating an investment account and making us all shareholders. He assigns seven reasons, the first of which was to “protect against its invasion by politicians by creating a militant ring of dividend recipients who would resist any such usage.”
Hammond accomplished that, history shows.
He also gets back to the theme of “Diapering the Devil” by heeding the warning of transforming something finite – non renewable resources – into something more permanent to avoid Venezuela’s fate. His reasons are expressed colorfully, as if he were an establishment outsider rather than a consummate politician who dove right into the fray of public discussions: “To put it crudely, I wanted to pit collective greed against selective greed. In the past, those who knew how to play the game were able to secure subsidies for their pet projects, many times at the collective expense of all other Alaskans.”
Near the end of his life, I recall an interview with Hammond during a gathering of former governors. He was walking with a cane because of foot injuries when he crashed his plane. He said every where he went, people walked up to him and wanted to shake his hand. “They say, ‘thank you, Governor’ for creating the PFD. It’s like my birthday every where I go, people coming up to speak compliments to me.”
He never tired of that, and now seems to want us to know his thoughts, hear his warnings, as if he could be with us forever. Did he know Alaskans?
Perhaps all too well.
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