Alaska Bonanza

A state shares its royalties

While millions of Americans trudged unhappily off to post offices last week to meet the deadlines for paying state and federal income taxes, Alaskans were grinning. They learned that same day that some 270,000 of them will get checks averaging $1,000 each from the state government. The source of the cash bonanza: the royalties that Alaska collects on oil pumped in the state. They are soaring unexpectedly this year by an estimated $760 million, to a projected total of $3 billion. But instead of finding new ways to spend the windfall, Governor Jay S. Hammond and state legislators decided to give it to Alaska's citizens.

Thus by the end of the year, most Alaskan taxpayers will get two different kinds of checks: 1) refunds on state income taxes already paid and 2) dividends from the state's oil revenue fund, in which unspent royalties have been invested since the first big oil-lease sale in 1969. Residents will get $50 for each year they have lived in Alaska since statehood in 1959. That means oldtimers whose residency dates back at least to then will receive $1,050.

But that is not all. In addition to the money to be distributed to residents this year, future state income tax obligations will be abolished for anyone who has paid such taxes in Alaska for at least three years since 1959. Residents who have filed returns for only one or two years will get substantial tax cuts. In effect, the state income tax will end this year for about 70% of Alaska's wage earners, while 20% will qualify for reduced taxes.

Nor is there any end in sight to the flow of dividends from the oil fund, which by the end of this year is expected to total more than $1 billion. Since it is invested in stocks, bonds and other securities, the fund could prove even more profitable than expected, and future legislatures might increase the $50-a-year formula. Oil price increases could also continue to swell the fund. While most Americans complain bitterly every time OPEC members raise prices, Alaskans have reason to applaud. With the price of domestic oil now decontrolled, Alaskan crude can rise to the world level; thus the state's royalties will grow with each foreign price hike.

Alaska's good fortune is also a political plus for Republican Hammond, who called the refund and oil dividend package "ultimately the most important legislation ever enacted" in his state. He added, "Some people call this socialistic, but it really is very conservative. The idea is to let the public decide how they want to use their money."

In its new-found affluence, the state legislature has even enacted a measure to help its ailing housing industry and all those residents wishing to buy new homes.

The legislators voted to set aside $105 million to subsidize banks willing to issue mortgages at interest rates as low as 8 1/2% for war veterans and 9 1/2% for others. Without this state subsidy, mortgage rates were running as high as 17%. The loans were snapped up so readily that the fund ran dry in just 45 days. The legislators are now debating whether to put more money into the program.

But even the handing out of cash has a price. As they apply for their checks, Alaskans will have to fill out some 1.2 million forms. The cost of the applications and the manpower required to process them is estimated at nearly $2 million over the next twelve months. There is one other minor hitch: the U.S. Internal Revenue Service will insist that those tax rebates and oil fund dividends be reported as income--and thus Washington too will benefit from Alaska's governmental generosity. qed

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