Legislators, the governor, members of the public — and most certainly candidates in this year’s state elections — should be paying attention to stocks, bonds, real estate and other investments.
Energy prices are fueling high inflation; stock markets are tumbling steeply downhill; Russia’s war on Ukraine is disrupting most everything in the world of finance and commerce; and a growing number of economists are talking “recession.”
But rather than focusing on their own savings, elected officials and candidates need to pay close attention to the falling value of investments held by the Alaska Permanent Fund.
The fund, on which the state depends to cover the biggest share of public services and annual dividends paid to Alaskans, has lost $5.2 billion in value from its monthly statement high of $82.4 billion on Dec. 31 (net of liabilities) to $77.2 billion as of last Thursday.
No reason to panic. The fund has lost money before, same as everyone else who has seen the market value of their savings drop at times. Such as during the 2000-2002 dotcom bust, when the fund fell 11% in value, or $3 billion, over two years.
And such as fiscal year 2009, when the Permanent Fund’s market value crashed 18%, falling on the coattails of the collapsed housing bubble and global financial meltdown, recording a $6.6 billion loss from the year before.
The Permanent Fund investment staff has a solid track record over the years, but no one is immune from the turmoil and market mess of recent months. As long as the fund maintains enough in reserves to continue its essential role of helping to pay for schools, roads, prisons and dividends — and everything else our communities need — Alaska will make it through this painful downcycle and emerge in good shape when the fund returns to making healthy profits.
The lesson is that no matter how much Alaskans love the Permanent Fund, no matter how much several lawmakers see it as an inexhaustible supply of cash for dividends, no matter how much it has grown over the years, it can lose money. A lot of money in a bad year. Political calls to plug in the ATM card and withdraw a few billion dollars to pay out extra-big dividends are irresponsible and jeopardize the future of the fund.
The Permanent Fund has come close a couple of times during its miserable investment years to not having enough available in its earnings reserve account to pay a dividend to Alaskans. Since then, with some great investment years, the reserve is back up over $10 billion in available funds, but Alaskans depend on that account for more than $3 billion a year to cover the largest portion of the budget for public services and the dividend.
Taking out more money to satisfy a reelection craving could mean lean years at the dinner table in the future if the earnings run low.
Though painful to see on paper, the fund’s loss in market value is not surprising this year, nor is it a cause for worry. It’s normal, just as there are good years and bad years for salmon returns. But just as overfishing in the good years can destroy salmon runs, so too could overspending the Permanent Fund earnings reserve leave the state fishing for a way to pay the bills in the future.
Be careful when candidates promise more than the fund can afford.
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