The legislature is now considering a new plan to resolve the state's fiscal gap, while at the same time protecting the long-term viability of the Permanent Fund and stabilizing the dividend. The Healthy Alaska Plan inflation proofs all of the assets in Alaska's savings accounts, and endows the Permanent Fund Dividend at a level that can be sustained and can grow over the coming years. An additional benefit of the Healthy Alaska Plan is that it will allow the Permanent Fund and our savings accounts to grow by an additional $20 billion over the next 20 years.

Alaskans are asking, "How does the Healthy Alaska Plan work, and why do we need it now?"

As background, Alaskan voters created the Permanent Fund in 1976, with the expressed purpose of saving some of the value of the nonrenewable oil resource for a time when those resources ran out. In 1976, that day of reckoning was expected to be sometime in the late 1980s, when Prudhoe Bay was predicted to be depleted. Technological advances extended the life of the massive Prudhoe Bay oilfield by many years, but now historically low oil prices have collided with dropping production to create a budget deficit of more than $1 billion. But we still have the ability to reorganize our assets to ensure today's Alaskans-and our children and grandchildren-a bright and sustainable future.

Various proposals have been put on the table to fill this gap, including a new income tax, a statewide sales tax, and drastic reductions in state spending. None of these proposals will fix the problem, either alone or all of them together.

The proposed income tax could raise an estimated $350 million, but would require a whole new bureaucracy to administer it. A five percent sales tax might raise another $300 million, far short of filling the gap, while taking away from local governments one of their basic funding sources. And what will happen to the vital services Alaskans want the state to provide if the budget is cut by $500 million or more?

Legislators have filled the gap in the budget since 1992 by borrowing more than $3.4 billion from savings accounts. But we cannot continue to draw down these accounts as a short-term fix. We have, right now, a window of opportunity to make the changes needed to fix the fiscal gap, only because we still have enough money in our savings accounts to make a solution work.

How does the Healthy Alaska Plan resolve this problem?

The core mechanism of the plan is one that has been successfully used for centuries, and is the same system that provides long term sustainable income and safety for the assets of most of the world's charitable and university endowments. The Healthy Alaska Plan combines the assets of the constitutional budget reserve into the earnings reserve account of the permanent fund and renames the account the Alaska Income Account.

The Permanent Fund will consist of the Alaska Income Account and the "corpus" of the permanent fund. As "unrealized gains" are realized, the funds will be deposited in the Alaska Income Account similar to how they are now deposited in the earnings reserve. The advantage of this new approach is that the plan will inflation proof all our savings, rather than just the corpus of the permanent fund. Petroleum royalties will continue to be deposited to the corpus of the permanent fund.

The plan relies on historical data to show that over long periods of time the assets of the plan will earn 8.25 percent income. The plan also provides a long-term rate of inflation of 3 percent, and this amount will remain in the fund as inflation proofing. The remaining 5.25 percent of the market value of the assets allows the plan to sustain itself indefinitely, providing a healthy level of benefits to all future generations of Alaskans.

In addition, because the useable income of the plan is a percent of the market value of the assets of the fund, Alaska's assets will be less susceptible to the volatility of the marketplace. This includes the dividend which is "endowed" under the plan. Of the 5.25 percent payout, 42 percent is dedicated to dividend payments.

It is important to keep in mind that under the present system, the dividend is tied directly to how well Permanent Fund investments perform. By virtue of the incredible bull market, income has been very high. A couple of years of a bear market would be immediately reflected in lower dividends, especially when considering required inflation proofing and a growing population.

In 1982, the legislature created the Permanent Fund Dividend, so that individual Alaskans could benefit directly from their savings account. This has been a very popular decision, and has been a great boost to the economy statewide. Dividends have averaged $985 per capita for the past 15 years. Under the Healthy Alaska Plan, the dividend starts out at $1000 for the next three years, and then gradually increases over time.

The Healthy Alaska Plan does not include either an income tax or a statewide sales tax, because they are not now needed. It does propose moderate cuts to the state budget this year and next, but then allows funding for essential services, such as state troopers, education, and transportation needs, to grow at the modest rate of 1.45 percent.

Since 1976, Alaskans have been wisely saving a substantial portion of our nonrenewable resource income. Since 1981, the legislature has also protected more than $6 billion in excess general fund income and Permanent Fund earnings by depositing those dollars into the corpus of the Permanent Fund. This is in addition to $5.5 billion added through inflation proofing. In fact, fully two-thirds of the money deposited into the Permanent Fund is there because of actions taken by the legislature.

In summary, the Healthy Alaska Plan holds the promise of a bright future for Alaska by:

• Closing the fiscal gap;
• Preserving, protecting, and increasing the value of the Permanent Fund;
• Protecting the dividend program for today and future generations by endowing the dividend;
• Limiting the growth of government but providing for a sustainable budget;
• Requiring no new statewide taxes; and
• Sustaining a healthy statewide economy and a stable business environment.

In short, the Healthy Alaska Plan protects the Permanent Fund and insures the dividend will be enjoyed by the future generations of Alaska.

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