Alaska Oil Checks Shrink, Prompting Reality Check

YOU could call it Christmas in October.

Each fall, part of Alaska's oil wealth flows directly into the hands of residents in the form of dividend checks from the Alaska Permanent Fund, the state's $15 billion oil trust account.

"It's sort of an early Christmas that the rest of the country doesn't experience," says Neal Fried, a state Labor Department economist.

This year's payout is $990 per person, more than half a billion in total, 53 percent of which was deposited directly on Oct. 12 into bank accounts. Other residents opted for old-fashioned mail delivery.

For businesses, dividend time provides an annual boomlet. Car dealers are promising to "double your dividend" on down payments. Airlines are advertising get-away packages for $990. The marquee at a local Tastee-Freez proclaims, "Your Permanent Fund Worth 264 Banana Splits or 762 Tacos."

But this uniquely Alaskan holiday may end soon - changing forever the mindset in America's last frontier. Production at the supergiant, but mature, Prudhoe Bay oil field is falling as the state's population is growing. The Alaska treasury faces a $500 million budget deficit this year that threatens to grow to $1.4 billion by 2005.

Now a long-term fiscal planning team appointed by the governor and legislative leaders has recommended some new taxes and a reduction in the near-sacred dividend.

For some, the prospect overshadows nearly all other news. "Well, O.J.'s out, so I guess the Permanent Fund dividend check is next," one Anchorage radio announcer said glumly after the O.J. Simpson trial verdict was rendered.

The dividend payout - which now exceeds the statewide construction payroll, according to Mr. Fried - is only part of Alaska's government largesse.

The dividends began in 1980, the same year the legislature abolished Alaska's personal income tax. In addition, all residents 65 and older are entitled to a $250-a-month "longevity bonus" checks and are exempted from some property-tax levies.

There is no state sales tax. The average Alaskan's burden from state and local taxes is only a third that borne by other Americans.

It's a system that fuels Alaskans' fervor for oil drilling on the Arctic National Wildlife Refuge coastline. As explained by Senate Energy and Natural Resources Committee Chairman Frank Murkowski, an Alaska Republican, the state's lifestyle depends on the controversial oil development.

"If we don't find a replacement [for current oil production], why, the Permanent Fund is going to go down, the dividend is going to cease or be substantially reduced, and this is just the harsh reality," Senator Murkowski said in an August press conference.

Enter the bipartisan long-range Fiscal Planning Commission, appointed last spring, which proposes to reduce Alaska's dependence on oil revenues for government operations to 60 percent from the current 80 percent.

In its report, released in draft early this month, the commission proposes everything from a state income tax and higher oil royalties to a cut in state government spending.

"There's something in this plan that offends everyone," says Brian Rogers, a former legislator who chairs the commission. Most offending is a cut in the dividend check, he says, which many Alaskans regard as a birthright.

Already, many conservatives are fuming, including Fritz Pettyjohn, a radio talk-show host and former state lawmaker.

"Down the road, the liberals can be counted on to try and do away with dividends altogether," Mr. Pettyjohn warned in his guest column in Sunday's Anchorage Daily News. Particularly repugnant are the proposed "sin taxes" for tobacco and alcohol, which prove that "liberals want more than your money. They also want to control your life...."

To Shelby Stastny, the arguments are familiar. As budget manager for former Gov. Walter Hickel, a Republican who preceded Democratic Gov. Tony Knowles, Mr. Stastny pitched many of the elements in the new fiscal plan. His ideas went nowhere.

"We are a transient state, and that's what's made it so hard to come up with a plan," Stastny says. "It just kind of dampens the ability to think long term."