For the last three decades, I’ve been an advocate of converting the Permanent Fund to an endowment type structure. This structure will provide a predictable and permanent source of funding dividends and state services when needed.
The full balance of the Permanent Fund needs to be Constitutionally Protected. We’ve reached a point in Alaska, because of current economic conditions, that the Permanent Fund earnings are needed for essential state services.
If the Legislature goes down the road of drawing from the Permanent Fund earnings on an unstructured, ad-hoc basis, the value of the fund will rapidly deteriorate. The Earning Reserve Account (ERA), made up of portfolio gains/losses + dividends, is by its very nature volatile and subject to market and economic swings. Market conditions and annual ad-hoc draws will deplete the ERA balance. This will lead to the elimination of dividends and our inability to have a balanced budget without massive borrowing. The law needs to change to protect the Permanent Fund for the future of Alaskans. We need a structured system of spinning off earnings from the total fund, to pay dividends and provide necessary state services while limiting the draw rate from the total fund.
I have introduced Senate Joint Resolution 9, (SJR 9). It would merge the ERA into the principal of the fund and therefore constitutionally protect the entire fund from Legislative appropriations. It would limit the payout to a maximum of 4.5% of the Permanent Fund’s 5-year average balance. This would block all spending from the Permanent Fund above the 4.5%. A payout of 4.5% could have a minimum dividend component of roughly 50%. In other words, the state needs financial help from the Permanent Fund and the people deserve to keep an annual dividend.
To view my presentation of SJR 9, please see the link below:
http://www.akleg.gov/basis/get_documents.asp?session=30&docid=55631
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