JUNEAU, Alaska (KTUU) - The Alaska Legislature may flout a rules-based system passed in 2018 to deliver a full Permanent Fund Dividend, the uncertainty of whether or not that will happen is causing concern at the corporation that maintains Alaska’s sovereign wealth.
In January of 2018, the board of trustees at the Alaska Permanent Fund Corporation made a rare resolution, calling on the Legislature to adopt a rules-based system for how the fund is used.
The Legislature responded by passing Senate Bill 26, legislation that set out how much money would be drawn from the Permanent Fund for state services and the PFD.
5.25 percent of the fund’s total wealth would be drawn each year, dropping down to 5 percent after three years, in a model known as a percent of market value (POMV) draw.
In 2019, that would see $2.9 billion drawn with no set divide for how much would go to the dividend and how much would pay for state services.
A critical part of the resolution was calling on lawmakers not to make ad hoc draws from the Earnings Reserve Account (ERA), the $19 billion fund that collects earnings from the Permanent Fund.
Angela Rodell, the CEO and President of the APFC, said that’s because the Permanent Fund Corporation likes to “keep as fully invested as possible, for as long as possible.”
Uncertainty over how much lawmakers may need means more money needs to be available at short notice. Stocks and bonds may be needed to be sold at a loss to get cash quickly.
That approach doesn’t “necessarily hurt Alaskans today,” Rodell said. “It hurts Alaskans three, five, ten years from now.”
Currently, the Legislature is debating whether or not to pay a full statutory dividend. Under the decades-old statutory formula, eligible Alaskans would receive a roughly $3,000 dividend.
Unless major cuts are made to the budget or a new revenue source is found, a $1.2 billion draw from the ERA or from savings accounts would be needed to make the payment.
The Legislature has rejected the majority of the governor's proposed cuts to the budget and hasn't shown an appetite for a statewide sales or income tax.
The Constitutional Budget Reserve (CBR) is the state’s main savings account but after years of spending, it has roughly $2 billion left in its depleted reserves.
Financial experts say roughly $2 billion should be kept in the CBR for emergencies and in case something unexpected happens. The ERA becomes an inviting place for legislators to turn to deliver a full dividend.
Rodell said Friday that the corporation’s board of trustees is set to meet this week where discussions will turn toward the potential for an ad hoc draw from the ERA, breaking the rules-based system passed less than a year ago.
“You asked for this, you gave this to us, please remember why you did this,” she said. “Because it’s really important for the long-term health of the investment returns and the ability to create intergenerational equity.”
Gov. Mike Dunleavy has been clear that both SB 26 and the statutory formula that has traditionally calculated the size of the dividend should be followed.
He proposed making major cuts to the budget to see a balanced budget and also deliver a full dividend. The governor did not express concern about legislators making an ad hoc draw from the ERA to pay for a full PFD in 2019.
“I don’t think they should be concerned about following the law with the Earnings Reserve with $18 billion in it,” he said last Wednesday, quoting an earlier estimate of the account’s size.
For the past two years, the Legislature has ignored the statute that calculates the size of the PFD, instead setting a dividend figure independently. In 2016, Gov. Bill Walker vetoed the PFD, delivering a $1,022 dividend to Alaskans.
Some lawmakers have spoken of the need to change the statutory formula and “the split” that determines how much of the POMV draw goes toward state services and how much goes toward a dividend.
Others, including the governor, believe any change to the law should go before a vote of the people. Dunleavy has also said the current PFD formula should be put in the Alaska State Constitution.
The board of trustees at the APFC will meet Wednesday and Thursday in Juneau to discuss the state of the fund and its future.
Although the trustees don’t typically like to become involved in legislative issues, discussion will likely turn to the debates going on in the state Capitol.
Another motion or resolution may be passed rebuking the Legislature for causing continued uncertainty.
“It is concerning that we had recognized, this body had recognized, the need for some certainty for investment planning and a year later we continue to have the debate,” Rodell said.
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