The Alaska Permanent Fund has prospered for almost half a century, growing ever more important for the state’s future. What started as a source of pride and prudence — showing the naysayers going back to statehood that Alaska can manage its money and save for when oil revenues go into decline — the fund has matured into the single-largest consistent source of income for public services.
It has profited from good investments through a diversified portfolio.
It has prospered from strong public support, protecting it from dumb ideas like writing a big check to build an uneconomic North Slope gas pipeline.
It has survived years of self-serving politics, with candidates wrapping themselves in an ever larger flag of ever bigger dividends for voters, overpromising what the checkbook can deliver.
But nothing — not even the constitutionally protected Alaska Permanent Fund — can last forever without adapting to change.
It’s time to amend the constitution to strengthen the entire fund, while ensuring that enough accessible money will be available every year to help pay for public services and the beloved dividend. That’s been its job since 2018.
The fund still has a lot of money, no doubt about that, at just over $76 billion in assets as of the latest financial statement on May 31, after deducting for what it owes. The problem is that the $76 billion is divided into two pieces: What cannot be spent without amending the constitution — called the principal of the fund — and what can be drawn out each year for public services and dividends — called the earnings reserve.
That divide is setting up a cash-flow problem for future budget years. Investment losses of the past couple of years have accelerated the need for a solution.
The fund’s overall balance has fallen more than $6 billion since Dec. 31, 2021, when it was at $82.4 billion. It’s the same as most investment accounts suffered through a miserable 2022. The fund will recover but, until then, that loss has brought Alaska closer to exhausting what is available to withdraw for public services and the dividend.
The problem being that the amount available for spending from the earnings reserve — actual investment profits, dividends and earnings deposited into the account, minuses losses — dropped from $9.55 billion on Dec. 31, 2021, to $4.8 billion as of May 31. Depending on how inflation, the stock market, real estate and other investments play out, the Permanent Fund’s managers estimate the earnings reserve could come up short of paying the state’s bills by 2026.
The solution is to amend the constitution to remove the line between principal and the earnings reserve to avoid short-term cash flow issues that could jeopardize the entire state budget and public services in any year.
This is not a permission slip for more spending. State law already limits how much can be withdrawn each year for state spending, and removing the line would not change that. Under the law, on a long-term average the fund would earn more on its investments on an annual basis than it pays out to the state budget. Which means the account would keep growing.
If Alaskans want even more protection against overspending, they could move the annual withdrawal limit from state law and add it to the constitution.
Either way, as the fund grows in importance, it’s crucial to treat it as a single account, same as other endowments. The line between principal and earnings just gets in the way now that Alaska relies on the fund to help pay for services.
The Legislature has talked about putting a constitutional amendment before voters. It’s time to do it. Inaction puts too much at risk.
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