In an afternoon press conference last week, Gov. Michael J. Dunleavy (R-Alaska) unveiled legislation aimed at making good on a big campaign promise: repaying the Permanent Fund Dividends reduced under predecessor Gov. Bill Walker (I-Alaska) in years 2016-2018 to fill the budget gap. Dunleavy’s proposals, laid out in Senate bills 23 and 24 would pace the “back-pay” of Walker’s reduced dividends to the tune of $1,061 this year, $1,289 next year, and $1,328 in 2019.

Commissioner Bruce Tangeman flanked the governor at the dais, explaining that SB23 and SB24 “address both eligibility and the amount that will be included in the back-pay” using a simple formula: “If you qualify for a dividend this year, and you qualified for a dividend in 2016, that amount will be included in your dividend payment this year.”

“We want people to understand that when we campaign on commitments, you have fulfill those commitments,” Dunleavy told reporters. “We will complete the back-pay over several years, make this right, and then move forward.”

Sen. Bill Wielechowski (D-Anchorage) has filed a payback plan of his own via Senate Bill 13. His proposal would forego the yearly installments of back-pay offered by Dunleavy, instead appropriating a one-time supplemental dividend for years 2016, 2017, and 2018 for all residents who were eligible in both the previous years and 2019. The advantage of Wielechowski’s plan, he says, is that the one-time payout negates the possibility of future legislatures declining the appropriations of funds. Under Dunleavy’s proposal, future legislatures would have to be sign off on the payments – the governor can’t bind appropriations beyond the current year.

No Ticket

Under the auspices of each plan, moving forward involves a step backward in evaluating eligibility. If an applicant qualified for the PFD in any of the affected years, they must also currently be eligible to receive this year’s dividend to be accorded the back-pay.

Alaska has seen three years of population decline, largely attributable to the state’s unemployment rate of 6.3 percent. Earlier this month, the State Department of Labor and Workforce Development issued its latest report, highlighting a net population decline of 1,608 people (0.2 percent) from July, 2017 to July, 2018. That figure joined the previous years, between 2016 and 2017, which also saw a decrease of 2,629 residents. The hardest hit regions were the Municipality of Anchorage (-2,386), followed by the Fairbanks North Star Borough (-734). The number of Alaskans age 64 or under “declined 0.9 percent while the 65-and-older group grew more than 5 percent.”

Feeling a job crunch has forced many to look for employment in the Lower 48. Our readiest neighbor, Washington, has an above-average, yet still more palatable, 4.7 percent unemployment rate. The national average is four percent. Our youngest cohorts – Alaska’s under-18 and 18-to-64 populations – fell by nearly a whole percentage point. 13 percent of our population is military, making them occupationally transient. State jobs have not recovered since 2016, when the slumping economy spurred budget cutbacks and the state shed 6,300 jobs. Another 3,600 were lost in 2017, according to last year’s employment forecast. This year’s forecast only expects about 1,400 of those jobs to return.

That means that a lot of people who would have been eligible for the back-pay then are not taken into account now, under both proposals – a reality Tangeman addressed at last week’s press conference.

“I don’t know if people have looked at the fine print when you apply for a dividend, but there is language in there that says ‘I am now and intend to remain an Alaskan resident indefinitely.’ Things change. People move. We understand that,” he affirmed. “Right now – today, January 16 – there were people that would have qualified and will get a dividend that are no longer in Alaska. I think that this addresses the fact that this is intended for Alaskans that were here and are still here and intend to remain here into the future. So, yes, some people will have qualified in ’16, maybe not in ’17, and maybe they qualify again in ’18. This addresses those folks instead of giving people that did qualify and are now gone instead of giving them the full lump sum for all three years. We think this is a reasonable way to spread it out over three years.”

Without a magic eight ball readily available to determine Alaskans’ long-or-short-term plans regarding residency, this determination resurrects constitutional questions surrounding the PFD.

The Longer You’re Here, The More You Get

Seven years after the initial $900 million in oil wealth was injected into the economy, ushered in by the 1969 oil lease sales at Prudhoe Bay, the Permanent Fund was created and enshrined in Article IX, Section 15 the Alaska State Constitution in 1976. Governor Jay Hammond called it a “misnomer” (“’Permanent?’ Only until a subsequent legislature decides otherwise,” he recollected in his memoir.)

The introductory dividend distribution scheme was passed by the legislature, under Hammond, in 1980 and based payouts according to time accrued living in the state – known as cumulative residency or, as Hammond phrased it, the “longer you’re here, the more you get” plan. “An Alaska resident aged 18 years or older could claim an annual PFD for each year of residency since statehood in 1959,” explained Karl Widerquist and Michael W. Howard in Alaska’s Permanent Fund Dividend: Examining its Suitability as a Model (2012). The legislature made a special appropriation from the general fund to boost the value of each year of residency to $50 for the program’s first year. Thus an adult resident who lived in Alaska for 21 or more years would get $1,050 in 1980, while a one-year resident would receive $50.”

“A prejudice for established residents was common during the oil boom when transients looking for a quick buck flooded the state, sending crime rates skyrocketing, and creating or worsening an assortment of social problems,” Dave Rose, the first director of the Alaska Permanent Fund, reflected in his book, Saving for the Future (2008). Rose pointed out that the tenure-based scheme belied the 1980 legislation’s intended purposes; chief among them “to provide an equitable distribution of energy wealth.” “With the passage of years, the disparity would grow – by 2009, the largest payment, representing fifty dividend shares, would be six hundred times that of the one-month payment.”

The archetypal payout scheme never got off the ground. Anchorage-based attorneys Ron and Patricia Zobel, who had been in state for just three years, brought suit in 1980, challenging that the tenure-based valuation violated the equal protection clause of the state and federal constitutions, as well as their right to migrate to Alaska, establish residency, and enjoy the full rights of Alaska citizenship. They asserted that the preferential treatment afforded longtime residents over those who were more recent transplants was unconstitutional. Expecting the litigation, Hammond lamented at the time, “When it came time to make the first [PFD] distribution, recalling the Zobels, I suggested dividend checks might be mailed out very slowly, in alphabetical order.”

Zobel v Williams

The Superior Court for the Third Judicial Judicial District sided with the Zobels, contending that the plan violated the rights and guarantees of interstate travel and equal protection. A split Alaska Supreme Court, however, reversed that holding in Williams v Zobel (1980). Chief Justice Jay Rabinowitz held that, though he conceded the question was a “close one,” durational residency was an acceptable standard for PFD distribution and the state statutes defining it were legitimate under state law. The prejudice against newer residents, articulated succinctly by Rose, was present on the bench when the opinion was written.

Throughout its history, from the days of the Gold Rush to the recent oil pipeline period, Alaska has been prone to the phenomenon that large numbers of people from without the state move in, derive great financial and other benefits from the state’s resources and opportunities, and then move out to enjoy the fruits of their labors elsewhere. This obviously results in a great drain of financial and other resources from the state. Of course, every state is equally subject to this phenomenon as a necessary by-product of the right of interstate migration; but Alaska is especially affected by this, due to its harsh climate, its high cost of living, and its geographical isolation from the other states. Although the problem is not unique to Alaska, the extent to which this problem affects the state is probably unparalleled.

The United States Supreme Court would take up the matter in 1982 and reverse the reversal.

“The separation of residents into classes hardly seems a likely way to persuade new Alaskans that the State welcomes them and wants them to stay,” U.S. Supreme Court Justice Warren Burger wrote in the court opinion. “Of course, the State’s objective of reducing population turnover cannot be interpreted as an attempt to inhibit migration into the State without encountering insurmountable constitutional difficulties.” Referencing comments made about the legislation creating the distribution scheme by Alaska State House Representative Dick Randolph (L-Fairbanks) – “[W]ithout . . . newcomers, we couldn’t have built that pipeline. Without their skill, without their ability, without their money, the pipeline wouldn’t be there…. So I… get a little bit tired of being chastized [sic] and penalized and discriminated against for having not been born here or not have been here 30 or 40 or 50 years.”

(Randolph currently serves as Gov. Dunleavy’s “special adviser on constitutional amendments.”)

“I join the opinion of the Court, and agree with its conclusion that the retrospective aspects of Alaska’s dividend distribution law are not rationally related to a legitimate state purpose,” Justice William J. Brennan added in a concurring opinion. “a State cannot compound its offer of direct benefits in the inventive manner exemplified by the Alaska distribution scheme: for if each State were free to reward its citizens incrementally for their years of residence, so that a citizen leaving one State would thereby forfeit his accrued seniority, only to have to begin building such seniority again in his new State of residence, then the mobility so essential to the economic progress of our Nation, and so commonly accepted as a fundamental aspect of our social order, would not long survive.”

The sticking point, to the eight justice – minus William Rehnquist, the lone dissenter – was the creation of “permanent sub-classes” of Alaskan citizens, in violation of the state and federal equal protection guarantees. In the case of Zobel, these sub-classes were represented by newer residents who would secure a smaller portion of the PFD because they had amounted the same “prior contributions” to society that longer-term residents had.

“[I]t is significant that the Citizenship Clause of the Fourteenth Amendment” – Section 1, Clause 1 – “expressly equates citizenship only with simple residence. That Clause does not provide for, and does not allow for, degrees of citizenship based on length of residence. And the Equal Protection Clause would not tolerate such distinctions,” Brennan made clear. “[D]uration of residence as the basis for a distribution of state largesse does closely track the constitutionally untenable position that the longer one’s residence, the worthier one is of the State’s favor. In my view, it is difficult to escape from the recognition that underlying any scheme of classification on the basis of duration of residence we shall almost invariably find the unstated premise that “some citizens are more equal than others.” We rejected that premise and, I believe, implicitly rejected most forms of discrimination based upon length of residence, when we adopted the Equal Protection Clause.”

Turning Zobel On Its Head

The proposals broached by Gov. Dunleavy and Sen. Wielechowski offer a flipside of the coin regarding cumulative residency; one which threatens more litigation and constitutional scrutiny. The question that will doubtlessly confront the courts, should either bill become law, is whether or not the opposite of Zobel applies: Do residents who were here – who are credited with “prior contributions” as citizens – hold legitimate claim to any returns back-payed to residents who still live here? Or, does this bill create a new sub-class of citizens within the United States and entitled to the U.S. Constitution’s equal protections guarantees, making such restrictions impermissible?

Tangeman did not respond to inquiry.

Wielechowski doesn’t seem concerned. “Our legislative attorneys did not flag any potential constitutional issues with our PFD bill,” he said when contacted over the weekend. He noted that he was familiar with the Zobel case and one of his staffers, who worked on the bill, was a lawyer who previously clerked for the Alaska Supreme Court. “She did speak briefly with Legislative Legal about the issue and there was general agreement that any claim would likely be analyzed under the rational basis test, which is very broad and unlikely to result in a declaration that the bill was unconstitutional,” he added.

When Zobel was before the Alaska Supreme Court, the body also chose to the more narrow rational basis test – a less stringent standard that limits the scope to a review to whether or not a law is rationally related to a legitimate government interest. And, in that instance, they upheld the act. It was the U.S. Supreme Court that undid it, which determined that “the statutory scheme [of the cumulative residency dividend could not] pass even the minimal test proposed by the State, [thus] we need not decide whether any enhanced scrutiny is called for.”

It is unclear if the current makeup of the High Court would concur or deviate from that precedent. It would be difficult to argue that the state has a compelling interest in tracking down would-be PFD recipients who have sought other states in which to reside (many for economic reasons beyond their control). However, in putting weight to the argument that longer-term residents add value to the state which is then rewarded by the PFD, ample consideration should be given to those contributors who, for whatever reasoning, have since left.

Zobel offers guidance regarding what is and isn’t constitutional within a question of dividend distribution, as it applies to long-term versus short-term residency. There has never been an instance tested in court where an applicant – who was eligible for the PFD at the time they would have received it – was deprived of that eligibility when the payout was restored retroactively. This is new, and untested ground.

Should either plan pass the legislature, it is hard to imagine a scenario where this will not be litigated.

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