"Proposing amendments to the Constitution of the State of Alaska relating to the community development fund, the permanent fund and the budget reserve fund"

Updated: March 5, 1999

HJR 23 proposes a constitutional amendment creating a dedicated fund for payments to municipalities within the state. Principal will be invested to yield competitive market rates and the fund's income will be distributed annually to municipalities. Fund principal will consist of an initial $750 million from the Budget Reserve Fund, with 2 percent of the Permanent Fund's income added to the principal for the next 20 years. As the principal of the fund increases, so too will earnings, and thus payments to communities. As payments increase, local taxes may decrease providing more money to individuals without a decrease in local services.

Local governments have individualized needs in addition to providing basic services. They do not always have sufficient land, economic or tax bases to provide the necessary funding; nor can the state continue to give it to them. With oil production decreasing, there is less general fund money available to the state. As revenues diminish, the state cannot provide adequate sustainable funding to local governments to meet their service demands.

A dedicated fund provides more funding reliability to local governments. Paying communities the income earned from the fund allows them to better estimate what they will receive. This provides a more stable and predictable stream of revenues to plan and provide services. It also gives more local control over priorities and services. With local government receiving funds directly, residents have the opportunity to be more knowledgeable about how the funds are used and able to provide more input on how they should be spent. Local governments will answer to their citizens for the way in which it is spent. The state can then concentrate its efforts on statewide programs and support directed more to specific or specialized needs.

This also strengthens the argument that the Permanent Fund and its proceeds are used for the public's purpose and are thus eligible to retain the federal tax-exempt status. The Permanent Fund was created as a public trust, the proceeds from which were to be used for a public purpose. The principal came from resource assets received at statehood because Congress did not believe Alaska could meet its collective needs from taxes alone. Dedicating a portion of the income to communities reiterates the argument that the state fulfills the public purpose by using "income from a collective asset to meet collective needs." Citizens' approval of the dedication by a majority vote reinforces that the public believes in the purpose for which it is to be used.